Ericsson’s Q3 Profit Declines, North American Sales Drop Amid Telco Spending Cuts

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Ericsson’s Q3 Profit Declines, North American Sales Drop Amid Telco Spending Cuts
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Swedish telecom company Ericsson (BS: ERICAs ) is anticipated to report a significant dip in its Q3 net profit for 2023. The company's net profit is expected to be SEK 1.26 billion ($114.1 million), a substantial decrease from SEK 5.36 billion in the previous year. The decline has been attributed to a SEK 32 billion non-cash impairment related to the impairment of goodwill at its Vonage business.

Sales also took a hit, falling by 5.2% to SEK 64.5 billion, and the EBITA margin dropped from 11.3% to 7.3%. Particularly affected was the Networks unit, where sales declined to SEK 41.5 billion. This drop was due to operators reducing spending and a considerable 60% fall in North American organic sales, despite being partially offset by robust sales in India.

The EBITDA margin for the Networks unit also fell, dropping from 20% to 12.6%. As we move into Q4, investors are closely monitoring Ericsson's margin guidance and strategies for inventory workdown. Despite the recent downturn, the company aims to hit the lower end of its targeted 15% to 18% Ebita margin range by 2024.

According to InvestingPro data, Ericsson's market cap stands at 16389.99M USD, with a P/E ratio of 14.85, indicating a moderate level of valuation. Moreover, the company has been profitable over the last twelve months, with an operating income of 2139.97M USD. Ericsson's revenue growth for the last twelve months was 14.64%, despite the challenges in the current market.

InvestingPro Tips suggests that Ericsson has been a stable player in the market, maintaining dividend payments for 19 consecutive years, and raising its dividend for the last 4 consecutive years. The company is known for paying significant dividends to its shareholders, with a dividend yield of 5.04% as per InvestingPro data. This consistent dividend payment history, combined with the company's low price volatility, makes it an attractive choice for investors seeking steady returns.

Citi analyst Andrew Gardiner provided insight into the global radio access network (RAN) market, predicting it will remain stable at 0% in 2023—with North America declining by 13%, Europe at flat growth, and China declining by 4%. Gardiner now expects the RAN market will shrink by 3% in both 2023 and 2024 due to pressure on telcos' capital spending.

This forecast underscores the challenges faced by Ericsson and other telecom companies as they navigate changing market dynamics and spending patterns among operators. As the InvestingPro Tips suggest, Ericsson's status as a prominent player in the Communications Equipment industry and its moderate level of debt could position it well to navigate these challenges. For more insights like these, consider checking out InvestingPro which offers additional tips and real-time metrics.

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