Ericsson Shares Surge 8% on Stronger-than-Expected Q2 Revenue

Ericsson shares rose 8% on Friday after the Swedish telecoms equipment maker reported a smaller-than-expected fall in second-quarter revenue, helped by a pickup in demand in North America.

Job Cuts and Cost Reductions:

Ericsson and rival Nokia have shed thousands of jobs and cut costs as customers buy less 5G telecom equipment. However, both companies were more upbeat in April, forecasting that demand would gradually revive towards the year-end.

“We expect market needs to remain challenging this year, as the pace of India investments slows. However, our sales will benefit during the second half from contract deliveries in North America,” CEO Börje Ekholm said.

Q2 Revenue and Analyst Expectations:

Revenue fell 7% to 59.9 billion crowns ($5.69 billion) in the quarter but topped the 58.3 billion anticipated by critics in an LSEG poll. In North America, sales rose by 14%.

Ericsson is benefiting North America after winning a major contract over rival Nokia to supply equipment to mobile operator AT&T. CFO Lars Sandström told Reuters that several customers boosted the second quarter in North America, but he did not name them. The company referenced “larger customers” in the Networks business unit.

Market Reaction:

Ericsson shares were up 8% by 0730 GMT, heading for their best day since October 2020. Paolo Pescatore, analyst at PP Foresight, said the results were “encouraging” in tough market conditions.

Inderes analysts said in a note that growing volumes in the Networks business in North America are raising hopes that big operators there will start investing again towards the end of the year.

Gross Margin and EBIT Loss:

The group’s quarterly adjusted gross margin widened to 43.9% from 38.3% a year earlier as sales shifted from low-margin India to the higher-margin U.S. market.

It posted a loss in adjusted earnings before interest and taxes (EBIT) of 11.9 billion crowns versus a profit of 2.8 billion a year earlier, reflecting an impairment it booked on its acquisition of cloud communications company Vonage.