Ericsson says on track for 2020 targets as second-quarter profit matches forecasts

STOCKHOLM (Reuters) – Mobile network gear maker Ericsson (ERICb.ST) posted a second-quarter profit in line with expectations on Wednesday and said it was on track to meet its financial goals due to strong sales of 5G equipment.

FILE PHOTO: The exterior of an Ericsson building is seen in Stockholm April 30, 2009. REUTERS/Bob Strong/File Photo

Some analysts had expected the company to upgrade its 2020 targets after showing steady profitability improvements in 2018 and 2019 on rising 5G demands following a period of falling spending by operators.

The company, which counts China’s Huawei and Finland’s Nokia (NOKIA.HE) as its main rivals, has pledged to deliver an operating margin, excluding restructuring costs, of over 10 percent in 2020.

“We see strong momentum in our 5G business with both new contracts and new commercial launches as well as live networks,” Chief Executive Borje Ekholm said in a statement. “To date, we have provided solutions for almost two-thirds of all commercially launched 5G networks.”

Quarterly gross margin in Networks fell to 41.4% from 43.2% in the previous quarter, mainly due to litigation settlement costs, strategic contracts and lower intellectual property rights licensing revenues.

Ericsson said the strategic contracts would boost margins in the long run but would hurt profitability in the near term. Overall, gross margin was 36.6% compared to 34.8% a year ago.

“In the quarter we had a negative impact on gross margin and expect this impact to increase during the second half of the year,” it said in the report.

Quarterly operating profit rose to 3.7 billion crowns from a 0.2 billion profit a year ago, in line with a mean forecast for a 3.7 billion profit in an analyst poll. Sales rose to 54.8 billion crowns from a-year-ago 49.8 billion, above forecasts of 53.2 billion.

Profit was negatively impacted by a litigation settlement cost to Intellectual Ventures of 400 million crowns.

Ericsson has staked its recovery on growing demand for next-generation 5G gear, and some analysts think it could benefit from current turmoil surrounding market leader Huawei.

Reporting by Helena Soderpalm, Editing by Michael Kahn

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