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    ERIC B   SE0000108656

ERICSSON AB

(ERIC B)
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Ericsson tops forecast on margin gains and 5G in China

10/21/2020 | 04:52am EDT
FILE PHOTO: The Ericsson logo is seen at the Ericsson's headquarters in Stockholm

STOCKHOLM (Reuters) - Telecoms equipment supplier Ericsson beat quarterly core earnings forecasts on Wednesday, helped by higher margins and China's 5G rollout, and said it was "more confident" about meeting its 2020 targets.

Ericsson shares jumped as much as 9% to a five year high as gross margins reached their best level since 2006 and revenues rose at the Swedish company's mainstay networks business despite disruptions caused by the COVID-19 pandemic.

The company has now won 112 5G contracts, up from 99 at the end of the second quarter, as more telecoms operators build next-generation networks and U.S. diplomatic pressure pushes out market leader Huawei from more countries.

But relations with China could become more fraught after Swedish authorities shut China's Huawei and ZTE out of its 5G network, citing security concerns.

Unlike Nordic rival Nokia, Ericsson has won contracts from all three major operators in China to supply radio equipment for 5G networks.

"The 5G roll out in China was the big driver in this quarter," Ericsson finance chief Carl Mellander told Reuters.

China's foreign ministry said on Wednesday Sweden should address its incorrect decision to ban Huawei and ZTE to avoid a negative impact on Swedish companies in China.

"We don't comment on different countries' decisions but in general we believe in free competition," Mellander said.

MARGINS LEAP

Ericsson's gross margin, excluding restructuring charges, rose to 43.2% in the third quarter from 37.8% a year earlier, reaching a level last seen in 2006.

"While the pandemic has hurt revenues for several of our customers, and in some cases this has led to a reduction of capex (capital spending), we have not seen any negative impact on our business, largely due to footprint gains," Chief Executive Borje Ekholm said in a statement.

Ekholm has driven a turnaround at Ericsson during his three years at the helm, improving margins amid growing demand for 5G equipment.

Third-quarter gains came mainly from the Networks division, which reported an adjusted operating margin of 22.7%, well above the forecast of 17.8%, Liberum analyst Janardan Menon said.

Adjusted operating earnings rose to 9.0 billion Swedish crowns ($1.0 billion) from 6.5 billion a year earlier, beating analysts' mean forecast of 6.98 billion crowns, according to Refinitiv estimates.

Total revenue rose 1% to 57.5 billion crowns.

The adjusted operating margin now stands at 11.1% for January-September, compared with Ericsson's 2020 target of more than 10% and its goal of 12-14% for 2022.

Separately, the company announced a five-year, multibillion-crowns deal with Telia to upgrade its 4G networks across Sweden and Estonia.

($1 = 8.7165 Swedish crowns)

(Reporting by Supantha Mukherjee and Helena Soderpalm; editing by Kim Coghill and Mark Potter)

By Helena Soderpalm and Supantha Mukherjee


ę Reuters 2020
Stocks mentioned in the article
ChangeLast1st jan.
ERICSSON AB -0.38% 109.42 Delayed Quote.12.06%
NOKIA OYJ 0.38% 4.529 Delayed Quote.43.73%
TELIA COMPANY AB 0.52% 36.755 Delayed Quote.8.23%
ZTE CORPORATION -1.99% 32.45 End-of-day quote.-3.57%
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Financials
Sales 2021 240 B 28 785 M 28 785 M
Net income 2021 18 673 M 2 243 M 2 243 M
Net cash 2021 28 373 M 3 408 M 3 408 M
P/E ratio 2021 19,6x
Yield 2021 1,93%
Capitalization 364 B 43 775 M 43 752 M
EV / Sales 2021 1,40x
EV / Sales 2022 1,27x
Nbr of Employees 101 113
Free-Float 89,4%
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Mean consensus OUTPERFORM
Number of Analysts 24
Average target price 131,14 SEK
Last Close Price 109,42 SEK
Spread / Highest target 41,7%
Spread / Average Target 19,8%
Spread / Lowest Target -13,2%
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Managers and Directors
NameTitle
Erik B÷rje Ekholm President, Chief Executive Officer & Director
Carl Mellander CFO, Senior VP & Head-Group Function Finance
Ronnie Leten Chairman
Erik Ekudden Chief Technology Officer & Senior Vice President
Xavier Dedullen Secretary, Chief Legal Officer & Senior VP
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