Ericsson Q4 Net Income Rises; Organic Sales Growth At 6%

By Dominic Chopping

STOCKHOLM--Sweden's Ericsson is due to report fourth-quarter earnings on Friday. Here is what you need to know:

NET PROFIT: The telecom-equipment maker is expected to post a net profit of 6.61 billion Swedish kronor ($725.8 million), according to a consensus provided by FactSet, compared with 4.78 billion kronor in the same period a year prior.

SALES: A FactSet forecast expects sales to fall 8.6% to 66.65 billion kronor from 72.91 billion kronor a year earlier. The weaker U.S. dollar is expected to be a major headwind to sales, with a 5.5% year-on-year impact, JPMorgan analysts say.

The stock is down around 9% over the last 12 months and trades at 86.72 kronor on Thursday.

WHAT TO WATCH:

• Ericsson guided for a fourth-quarter adjusted gross margin in the networks unit in the range of 49% to 51%. In the third quarter, the company reported a strong group adjusted gross margin at 48.1%, mainly driven by tight cost control and better product mix. Despite that, UBS analyst Francois-Xavier Bouvignies expects a weaker fourth quarter gross margin of 47.2%. "Gross margins in the upcoming quarters will be crucial in evaluating the durability of current margin levels."
• Ericsson is sharpening the focus of its networks business on markets like the U.S., India and Japan where Chinese competition is limited, while at the same time de-emphasizing some markets like Latin America. The company expects sequential fourth-quarter network sales growth to be broadly similar to three-year average seasonality of 16%.
• Investors will focus on the company's cash return program that is likely to be announced, JPMorgan analysts say. The bank said that if a buyback is announced, it could be as much as around 10% of market capitalization. "However, it is not clear if the company will announce a one-off share buyback or special dividend or if they will announce an ongoing share buyback program - the latter would be taken positively by investors."

Write to Dominic Chopping at dominic.chopping@wsj.com

Trade tensions must be de-escalated to avoid hurting the development of AI in Europe, Ericsson Chief Executive Borje Ekholm tells CNBC at the World Economic Forum in Davos, Switzerland. "Europe, in a way, relies on American technology, so there is a need here to find a solution where we work together," he says. If Europe wants to lead in AI, it will have to leverage U.S. technology and combine it with connectivity provided by Ericsson and Nokia, he adds. The next step should be for Europe to focus on how to create prosperity and become competitive and successful on its own, Ekholm says. (dominic.chopping@wsj.com)

STOCKHOLM (dpa-AFX) - Ericsson (ERIC) announced proposed staff reductions in Sweden, and has submitted a notice to the Swedish Public Employment Service. The company noted that approximately 1,600 positions could be impacted in Sweden. The company has initiated negotiations with the relevant Swedish trade unions.

Ericsson said the proposed staff reduction is part of global initiatives to improve cost position while maintaining investments critical to its technology leadership. Ericsson also stated that the initiatives to increase operational efficiency will continue across the Group but will not be announced separately.

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STOCKHOLM (dpa-AFX) - stc Group, a digital enabler in Saudi Arabia, has signed a five-year Master Frame Agreement with Ericsson (ERIC) to accelerate the delivery of advanced digital infrastructure and boost technology adoption across the Kingdom of Saudi Arabia. stc Group will tap Ericsson's latest portfolio offerings including: 5G hardware and software, cloud-native solutions, advanced managed services, and infrastructure and network support.

stc will accelerate 5G expansion and the rollout of advanced technologies such as 5G Standalone, 5G Advanced, Massive MIMO, Ericsson Radio System products, cloud-native platforms and network management solutions.

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