Ericsson sees the margin at the bottom of the lens; drives cost reduction

  • The company will reach the lower end of the EBITA range of 15-18% by 2024
  • Accelerating cost reductions of SEK 9 billion by the end of next year

STOCKHOLM, Dec 15 (Reuters) – Swedish telecommunications equipment maker Ericsson (ERICb.ST) said on Thursday it would hit the lower end of its long-term profit margin (EBITA) target of 15 to 18 % by 2024, many of its most profitable markets are showing signs of slowing down.

The company, one of the world’s largest 5G technology providers, predicted that the 5G radio equipment market will see annual growth of 11% over the next three years, while the overall market was flat.

“Some of our clients, like in North America, expect lower CapEx (capital expenditure) after very rapid construction in early 2022,” CEO Borje Ekholm told investors on his trading day. capital.

As US and other markets slow, Ericsson hopes new markets like India will help balance some of the weaker demand for 5G equipment.

The company is now accelerating its plans to cut costs by 9 billion crowns ($880 million) by the end of 2023. After Ekholm took over as helm of the company in 2017, Ericsson made deep cuts to cut costs, laid off thousands of employees and focused on research. to get the company out of losses.

While demand for 5G equipment has been strong, the early stages of rollouts tend to have lower margins, meaning telecoms groups such as Ericsson and Finnish rival Nokia (NOKIA.HE) are relying on patent royalties to increase their profits.

Ericsson last week announced it had reached a global agreement with Apple (AAPL.O) to end a long legal battle over royalty payments for 5G patents on iPhones, which has weighed on profits and stocks this year.

Both Ericsson and Nokia have sought to cut costs as they face continued chip shortages and disruption from the war in Ukraine, including their planned exits from the Russian market.

Ericsson is also under the scrutiny of US regulators after the company disclosed potential payments to the Islamic State militant group in Iraq – misconduct which it said “began at least in 2011”.

“We continue to thoroughly investigate the allegations in cooperation with the authorities to understand whether the allegations may be substantiated or not,” Ekholm said.

Ericsson had in 2019 settled separate corruption allegations with US authorities by paying a fine of more than $1 billion, and analysts expect the Iraq scandal could lead to another large fine.

On Wednesday, Ericsson said U.S. regulators had extended their oversight of the company’s compliance by a year following the 2019 settlement.

Reporting by Niklas Pollard and Supantha Mukherjee in Stockholm; Martin Coulter in London, editing by Terje Solsvik and Elaine Hardcastle

Our standards: The Thomson Reuters Trust Principles.

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