TLDR:
- Ericsson’s Q3 earnings exceeded analyst estimates, with adjusted EBIT of 7.3 billion kronor
- North American sales grew 55% year-over-year, boosted by the AT&T contract
- Shares rose 7.5% to their highest level since April 2022
- Cost-cutting measures and the AT&T deal have improved investor confidence
- Telecom operator spending fell 10% in H1 2024 and is expected to continue declining
Ericsson, the Swedish telecommunications equipment manufacturer, reported better-than-expected third-quarter earnings for 2024, primarily due to strong growth in North America and ongoing cost-cutting measures.
The company’s adjusted earnings before interest and taxes (EBIT) reached 7.3 billion kronor ($699 million), surpassing the average analyst forecast of 5.6 billion kronor.
The positive results led to a significant boost in Ericsson’s stock price, which rose 7.5% to 84.16 kronor, its highest level since April 2022. This increase reflects growing investor confidence in the company’s strategy and performance.
A key driver of Ericsson’s success in the third quarter was the substantial growth in North American sales, which increased by 55% compared to the same period last year.
This growth was largely attributed to the company’s recent contract win with AT&T, valued at $14 billion. The deal, which involves rolling out OpenRAN technology, has begun to generate significant revenue for Ericsson in the second half of 2024.
Börje Ekholm, Ericsson’s CEO, highlighted the importance of the AT&T contract during an investor call, stating that it helped drive “strong deliveries” in the North American market. He also noted that sales in Europe were growing, despite the overall challenging market conditions for network technology.
The company’s financial performance has been bolstered by aggressive cost-cutting measures implemented in response to a difficult telecom equipment market. These measures included significant job cuts, which, combined with securing the AT&T contract in December 2023, have helped improve Ericsson’s financial position and market perception.
However, the broader telecom equipment market continues to face challenges. According to Dell’Oro Group, telecom operator spending fell by 10% in the first half of 2024 compared to the previous year, with further declines expected for the remainder of the year.
This trend is evident in some major markets, such as India, where 5G rollout spending has slowed, and in the United States, where many operators have accumulated equipment stockpiles.
Despite these industry-wide headwinds, Ericsson’s CFO, Lars Sandström, described the third-quarter sales as “exceptionally high” following “exceptionally low” sales at the beginning of the year. He anticipates sales to stabilize over the coming quarters.
The company’s performance has drawn positive attention from analysts and investors alike. Citi analysts Andrew Gardiner and Daniel Schafei noted that while the end market remains challenging overall, Ericsson’s strong profitability in the US market and effective cost management are supporting an improving bottom line.
Christer Gardell, founder of activist investor Cevian Capital, praised Ericsson’s performance, stating that the results demonstrate the positive impact of recent restructuring efforts, particularly in terms of improved gross margin and cash flow. Gardell expressed optimism about Ericsson’s future profit growth potential.
Looking ahead, Ericsson is exploring new opportunities for network monetization. The company recently announced a joint venture with 12 other telecom operators to create a unified platform for app developers to access mobile networks. This initiative is expected to generate new revenue streams for the company.
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