Ericsson earnings miss as slowing U.S. market hits margins

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Ericsson earnings miss as slowing U.S. market hits margins
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  • Expects Q1 core earnings to be lower than last year
  • Expects to see effect of cost savings from Q2
  • Cost savings to include headcount reduction -CFO
  • Gross margin fell to 41.4% from 43.2%

STOCKHOLM, Jan 20 (Reuters) – Sweden’s Ericsson (ERICb.ST) on Friday missed fourth-quarter core earnings expectations as sales of 5G equipment slowed in high-margin markets such as the United States.

With U.S. customers such as Verizon (VZ.N) tightening their purse strings, Ericsson is hoping newer markets such as India provide some growth.

It has also announced plans to cut costs by 9 billion crowns ($880 million) by the end of 2023.

That will involve reducing consultants, real estate and also employee headcount, Chief Financial Officer Carl Mellander said in an interview.

“It’s different from geography to geography, some are starting now, and we’ll take it unit by unit, considering the labour laws of different countries,” Mellander said.

He declined to say if the headcount reduction would be similar to 2017 when Ericsson laid off thousands of employees and focused on research to return the company to profitability.

Ericsson expects a margin fall seen in its Networks business to persist through the first half of 2023 but the effect of cost savings to emerge in the second quarter.

Its gross margin for the final quarter of 2022 fell to 41.4% from 43.2%.

“The fourth quarter shows once again that the U.S. has a big impact on Ericsson’s margins,” said Inge Heydorn, partner and fund manager at investment firm GP Bullhound.

The company’s fourth-quarter adjusted operating earnings excluding restructuring charges fell to 9.3 billion Swedish crowns ($902 million) from 12.8 billion a year earlier.

That was short of the 11.22 billion expected by analysts, Refinitiv Eikon data showed.

Net sales rose 21% to 86 billion crowns, beating estimates of 84.2 billion.

A settlement of a patent deal with Apple (AAPL.O) last month resulted in revenue of 6 billion crowns, but Ericsson also took 4 billion crowns in charges, including a provision for a potential fine from U.S. regulators and divestments.

Ericsson said it expects significant patent revenue growth over the coming 18-24 months.

($1 = 10.3095 Swedish crowns)

Reporting by Supantha Mukherjee in Stockholm, editing by Terje Solsvik

Our Standards: The Thomson Reuters Trust Principles.

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