Ericsson tops forecasts on 5G boom

The Swedish company's fourth quarter adjusted operating earnings rose to $1.3bn

The Ericsson Group headquarters in Kista, north of Stockholm in Sweden. EPA

Ericsson beat fourth-quarter core earnings forecasts on Friday, helped by strong sales of 5G equipment and the ban on Chinese rival Huawei in several countries.

Besides selling more, the Swedish company is also earning more from each sale, with gross margins rising to 40.6 per cent in the quarter from 36.8 per cent a year earlier.

In particular, the core Networks business saw margins at 43.5 per cent from 41.1 per cent a year earlier, on a 20 per cent rise in sales.

"The competition in our industry is always cut-throat and the trick is to be ahead of the cost curve," chief financial officer Carl Mellander said.

“A lot of the money we invest in R&D [research and development] not only goes into making better functionality and features, but also to reduce the cost structure."

The company said its operating margin of 12.5 per cent in 2020 reached the 2022 group target range of 12 per cent to 14 per cent two years early.

"The 2022 goals are simply too low," said Christer Gardell, co-founder of Ericsson shareholder Cevian Capital. "Ericsson has much more to give."

The company's quarterly adjusted operating earnings rose to 11 billion Swedish crowns ($1.3bn) from 6.5bn crowns a year earlier, beating analysts' mean forecast of 8.6bn crowns, according to Refinitiv estimates.

Total revenue rose 5 per cent to 69.6bn crowns, beating estimates of 68.3bn crowns.

"This reflects continued high activity levels in North America and North East Asia and also in Europe where we further increased the market share," chief executive Borje Ekholm said.

North East Asia includes China, where Ericsson, unlike Nordic rival Nokia, got 5G radio equipment contracts from China's three largest telecom operators.

Nokia will report earnings next week.