Ericsson sales, profit lift in Q4 despite continuing slowdown in China sales

Ericsson reported higher revenues for the fourth quarter and full-year 2021, with growth still tempered by the slowdown of sales in China, but helped by investments in its product portfolio. Ericsson noted it has so far been able to mitigate inflationary pressure by evolving its product portfolio, strengthening it this year with Massive MIMO radios for enhanced network performance and its new Cloud RAN portfolio for 5G mid band. As a result, the company has increased its dividend for 2021 to SEK 2.50, from 2.00 in 2020.

For the quarter, revenues lifted to SEK 71.3 billion from 69.6 billion the year before, with organic sales up 2 percent including China sales and 5 percent higher without. Ericsson had warned in May that Sweden excluding Chinese vendor products from its 5G auction would likely affect Ericsson numbers. EBIT rose to SEK 11.9 billion from 11.0 billion, and increased to SEK 12.3 billion excluding restructuring charges, from 11.0 billion. The net profit climbed to SEK 10.1 billion from 7.2 billion, with diluted earnings per share up at SEK 3.02 from 2.26.

Networks organic sales increased by 3 percent, despite significant market share losses in Mainland China. Meanwhile, Digital Services organic sales were flat, and excluding China, they improved by 3 percent. Both Managed Services and Emerging Business and Other improved their gross margins, with Cradlepoint’s performance as the main contributor for the latter. Ericsson note it was seeing increasing momentum for its 5G portfolio in dedicated networks and Cradlepoint. 

Finally, IPR revenues dipped to SEK 2.4 billion from 2.6 billion. The company believes however that it is well positioned to conclude pending and future licence renewals, helped by its strong position in 5G and its broad patent portfolio. That said, IPR revenues will go lower to EK 1.0-1.5 billion in the first quarter, hit by several expiring patent licence agreements pending renewal and 5G licence negotiation.

Higher profit in 2021, on unchanged revenues

For the full-year 2021, revenues were unchanged at SEK 232.3 billion, with organic sales rising 4 percent and Networks sales strengthening by 7 percent. The loss of market share in China had a negative impact of SEK 7.7 billion on revenues, and slowed growth by 3 percentage points. Excluding China, organic sales growth lifted 8 percent. 

Annual EBIT lifted to SEK 31.8 billion from 27.8 billion, and the net profit increased to SEK 23.0 billion from 22.3 billion, with diluted EPS going to SEK 6.81 from 5.26. The free cash flow before mergers and acquisitions advanced to SEK 32.1 billion form 22.3 billion, with net cash jumping to SEK 65.8 billion at end-December, from 41.9 billion the year earlier. 

CEO Borje Ekholm attributed growth in the quarter and year to investments into its core business. He added that the acquisition of Vonage, announced in November 2021, will give Ericsson the foundation to develop a Global Network Platform to drive innovation on top of the 5G networks and will add to the “strong progress” in 2021 in growing the company’s organic enterprise portfolio, consisting of dedicated networks and IoT, and follows the successful integration of Cradlepoint. The CEO also noted that the company reached its 2022 EBIT margin target of 13.9 percent one year early, even while absorbing significantly increased investments in R&D, Enterprise, cybersecurity and compliance. 

Core business to remain strong in 2022

Looking towards 2022, Ericsson was less muted than in the previous quarter, and said fundamentals should remain strong for its core mobile infrastructure business. The company will continue to increase investments in R&D to sustain its technology leadership and strengthen its competitive position amid the rollout of 5G networks. At the same time, it will continue to expand its presence in the enterprise market. “Over time, we expect the enterprise segment to provide higher growth and profitability than our mobile infrastructure business,” the CEO said. 

The group EBIT margin target for 2022 of 12-14 percent remains, excluding the Vonage-related segment.  Ericsson said its key focus will really be accelerating the pace towards reaching its long-term target of an EBITA margin of 15-18 percent, following its EBITA margin of 14.6 percent last year. The company hopes to reach this goal in 2-3 years.