5G Deployments, Digital Services In Focus As Ericsson Reports Q1 Results

+22.79%
Upside
5.51
Market
6.77
Trefis
ERIC: Ericsson logo
ERIC
Ericsson

Ericsson (NASDAQ:ERIC), one of the largest network equipment manufacturers, is expected to publish its Q1 2019 results on April 17. Below, we take a look at some of the key trends we will be watching when the company reports earnings.

What to expect from Ericsson’s Q1?

  • Consensus expectations for EPS stand at $0.05 per share, up from $0.01 reported in the year-ago quarter
  • Revenue are expected to be in the $5.3 billion range, up by about 4% year-over-year

What are the key factors that will drive results?

  • Networking business (which accounted for ~65% of FY’18 revenue) should expand, driven by higher sales to North America
  • Managed Services (~16% of FY’18 revenue) should benefit from stronger margins, although its top line could remain sluggish
  • Digital Services may continue to underperform, as Ericsson focuses on turnaround
Relevant Articles
  1. Down 16% This Year Amid A Weak Demand In The U.S., What Lies Ahead For Ericsson Stock?
  2. Is Ericsson Stock A Buy Despite Lull In North America?
  3. Is Ericsson Stock Good Value At $6?
  4. Can Ericsson Recover From Its 9.2% Drop Over The Past Two Weeks?
  5. Forecast Of The Day: Ericsson Managed Services Revenue
  6. Ericsson Stock Looks Unlikely To Sustain Its Earnings Driven Outperformance

What will drive the performance of the Networking business?

  • Networking results will be driven by the North American market, where carriers have commenced their 5G rollouts. This could be partially offset by winding down of 4G spending in markets such as China
  • Ericsson could gain traction in the U.S., as it has been pricing 5G equipment competitively while planning to carry out more R&D and manufacturing in the country.
  • An improving product mix – higher mix of 5G-ready Ericsson Radio (93% of total deliveries in Q4) – could also drive sales.
  • Operating margins should also improve year-over-year, driven by the recent cost-cutting program.

What about the Managed Services business?

  • Ericsson has been focusing on improving the profitability of the segment by exiting or renegotiating unprofitable contracts (42 contracts addressed as of Q4’18)
  • While this is weighing on growth, it should improve margins. Ericsson is targeting operating margins of as much as 8% in 2020, up from 5% in FY’18.

Will things get better in Digital Services business?

  • The segment has been underperforming due to headwinds in Business Support Systems (BSS) operations (revenues down ~2% in FY’18, -22.3% operating margins)
  • Past BSS strategy focused on pre-integrated solutions and full-stack revenue management. This failed to gain traction with customers, and the company has now refocused the full-stack Revenue Manager to fulfilling existing customer commitments only.
  • It is also exiting or renegotiating low-performing customer contracts, with 23 of 45 contracts addressed as of December 2018. This could lead to better margins.

View our interactive dashboard analysis on What Is The Outlook Like For Ericsson?  You can modify key drivers to arrive at your own estimates for the company’s EPS and valuation. In addition, you can also see all of our data for Information Technology Companies here.

 

What’s behind Trefis? See How it’s Powering New Collaboration and What-Ifs

For CFOs and Finance Teams | Product, R&D, and Marketing Teams

All Trefis Data

Like our charts? Explore example interactive dashboards and create your own.