Ericsson Profit Margin To Reach At Lower End of target
According to the latest reports, Swedish telecom smartphone and equipment maker Ericsson recently stated that the company is expected to reach the lower end of its long-term target of a profit (EBITA) margin of 15-18% by 2024. The reason behind this is that most of its more profitable markets show signs of slowing down.
Ericsson Pushes For Cost Cuts
No doubt, the company is one of the world’s biggest suppliers of 5G technology. Let me tell you that the 5G radio equipment market would see annual growth of 11% over the next three years. Meanwhile, the overall market has been seen as flat. CEO Borje Ekholm stated to investors on its Capital Markets Day:
“Some of our customers like in North America are guiding for lower CapEx (capital expenditure) following a very fast build out in the beginning of 2022”
The fact is that the US and other markets are slowing down nowadays. That’s why Ericsson is also hoping that newer markets such as India will help the company balance some of the lower demand for 5G equipment. In addition to all this, the company is also accelerating plans to cut costs by 9 billion crowns ($880 million) by the end of 2023. After CEO Ekholm took over the top job in 2017, the equipment maker made deep cuts to save costs. Even though, the company laid off thousands of employees and focused on research to pull the company out of losses.
The point worth mentioning here is that the demand for 5G equipment has been strong. The early stages of rollouts seem to have lower margins, which means the telecom groups for instance Ericsson and Finnish rival Nokia can rely on patent royalties in order to boost profits.
Last week, Ericsson struck a global deal with silicon giant, Apple in order to end a long-running legal battle over royalty payments for 5G patents in iPhones which dented profits and shares this year. Ekholm said:
“We continue to thoroughly investigate the allegations in cooperation with the authorities to understand whether or not the allegations can be substantiated.”
Ericsson settled separate bribery allegations with US authorities back in 2019 by paying a fine of over $1 billion. Furthermore, analysts expect that the Iraq scandal will lead to another hefty fine. Ericsson further said that US regulators had extended their monitoring of the company for compliance after the 2019 settlement for one more year.
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