Q3 2024 Earnings Summary
- Ericsson is experiencing increased business in North America that is broader than just one contract, indicating a wider pickup in investment by North American operators.
- Ericsson has secured new contract wins and footprint wins in India, an important and growing market, and expects India to be bigger in the future.
- The competitive environment in the RAN market remains stable, and Ericsson is maintaining commercial discipline, focusing on profitable contracts, which may lead to better margins.
- Market conditions remain challenging with flattish growth expected to continue, and inflationary pressures are increasing costs. Management acknowledged that in a flattish market with cost increases from inflation, they need to adjust their cost base accordingly, suggesting potential pressure on margins into 2025.
- The strong performance in North America may not be sustainable or broad-based. While North America showed significant growth, management declined to provide specific visibility on spending recovery from other major operators, and suggested that the increase is not solely due to one contract, but did not elaborate further.
- Gross margins benefited from one-time items, indicating underlying profitability may be weaker. The adjusted gross margin in Q3 included a benefit of about one percentage point from retroactive IPR licensing and a customer settlement. Excluding these one-offs, gross margins may be lower.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Gross Margin | Q4 2024 | 45% to 47% | 47% to 49% | raised |
Sales Seasonality - Networks | Q4 2024 | normal seasonality | below average seasonality | lowered |
Sales Seasonality - Cloud Software and Services | Q4 2024 | normal seasonality | below average seasonality | lowered |
Restructuring Costs | FY 2024 | no prior guidance | around SEK 4 billion | no prior guidance |
IPR Revenue | FY 2024 | SEK 12 billion to SEK 13 billion | at least SEK 13 billion | raised |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
North American Market Dynamics | Described consistently as a source of growth opportunities from major contract wins (e.g. AT&T) with cautious commentary on longer‐term sustainability in Q2 2024 ( ), Q1 2024 ( ) and in Q4 2023 ( ). | In Q3 2024, North America registered very strong growth (55% YoY increase) from the AT&T ramp-up, though there are reminders that this momentum may normalize in coming quarters ( ). | A recurring theme of strong near-term opportunity yet tempered by ongoing sustainability concerns. |
India Market Developments | Earlier calls noted a transition from record 5G-driven growth (Q4 2023 with record levels and sequential slowdown) to a slowdown in Q1 2024 (organic sales down 19% YoY) and a significant normalization in Q2 2024 ( ). | In Q3 2024, the market saw a steep decline with sales down 43%, despite a few new contract agreements; sentiment is more negative as the post-5G buildout normalization continues ( ). | The narrative has shifted from a once record performance to a marked decline and normalization, indicating a sustained downward sentiment. |
Profitability and Margin Optimization | Previous periods featured moderate margins (gross margin ~41%–42.7% in Q4 2023 and Q1 2024) achieved through cost‐saving measures and structural actions, though countered by inflationary pressures ( ). Q2 2024 also reported margins in the low 40%s with similar cost initiatives ( ). | Q3 2024 delivered a marked improvement with gross margins rising to 46.3%, driven by favorable market mix, higher IPR licensing revenues, and robust cost–out activities; future guidance remains positive ( ). | A clear positive trend in margin performance as cost optimization initiatives mature, though inflationary headwinds persist. |
IPR Licensing and Litigation Risks | Consistently highlighted as a robust revenue driver across Q1 2024 (with a run rate of approximately SEK 11 billion and notable litigation disputes with some Tier 1 vendors ) and Q2 2024 (with targets around SEK 12–13 billion, no legal disputes mentioned) and noted in Q4 2023 with positive license renewals ( ). | In Q3 2024, the focus is on strong revenue growth (SEK 3.5 billion in the quarter) with an upbeat outlook on new 5G agreements, and no reference to legal disputes is made ( ). | While the revenue target and growth remain consistent, Q3 shows a more positive narrative with the omission of litigation risks that were mentioned earlier. |
Global Network Platform and Network APIs | Across Q4 2023 ( ), Q1 2024 ( ) and Q2 2024 ( ) the discussion centered on building an ecosystem, shifting pricing models, and launching marketplaces to monetize network capabilities via APIs. | In Q3 2024, focus intensified through the announcement of a joint venture to aggregate network APIs, reinforcing the model as a multi–billion dollar opportunity, with clear progress toward commercialization ( ). | A consistent strategic focus that is gaining momentum—with an increasing emphasis on joint ventures and monetization opportunities via network APIs. |
Competition from Chinese Vendors | Mentioned explicitly in Q2 2024 as increased aggressive competition in Europe and Latin America impacting market share and margins ( ); not discussed in Q1 2024 or Q4 2023. | Q3 2024 did not highlight increased competition from Chinese vendors, with executives stating that the competitive environment remains largely unchanged ( ). | The topic was pronounced in Q2 2024 but has now receded in emphasis in Q3 2024, suggesting either a shift in focus or less immediate impact. |
Vonage Acquisition Performance | Q4 2023 and Q1 2024 featured underperformance narratives—Q1 noted a 5% YoY decline tied to contract loss ( ) and Q2 detailed significant write–downs (exceeding SEK 4 billion) and integration challenges ( ) with ongoing concerns over the business’s growth. | Not mentioned at all in Q3 2024, with no discussion of challenges or underperformance in the current period. | Once a negative focus due to underperformance and integration issues, the topic is now absent from Q3 2024 discussions, indicating reduced emphasis. |
Cost Optimization and Restructuring | Consistently discussed with mentions of headcount reductions (e.g., >9,000 reductions in Q4 2023, 1,200 in Sweden in Q1 2024) and extensive cost–base adjustments across Q1, Q2 and Q4 2023 ( ), with significant restructuring provisions and clear cost–saving targets. | Q3 2024 continues to underscore active cost–out activities, productivity improvements, and restructuring plans (targeting SEK 4 billion for the full year) to manage inflation and a flattish market ( ). | The focus on cost management remains consistent and shows steady progress, with current communications emphasizing productive gains despite ongoing inflation. |
Software Transition and Cloud Services | Earlier periods (Q4 2023, Q1 2024, Q2 2024) discussed the shift from hardware to software, with gradual changes in product mix and cloud services turnaround efforts—albeit with some short-term challenges (e.g. slight declines in cloud organic sales in Q1 2024) ( ). | Q3 2024 highlighted the ongoing transition with a structural shift towards higher software content and improved cloud service margins, even if top–line revenue faced minor declines, reinforcing the long–term digital strategy ( ). | An enduring strategic theme showing continued positive shifts toward software and cloud, with recent developments indicating stronger margin benefits. |
Macroeconomic Headwinds and Uncertain Conditions | Consistently a concern across Q4 2023, Q1 2024 and Q2 2024—with discussions of flat or declining organic sales, delayed investments, and inflationary pressures impacting CapEx and customer behavior ( ). | Q3 2024 continues to express flat growth and persistent uncertainty with caution noted on delayed investments and ongoing inflation (e.g. salary increases, bonus pressures), reinforcing a defensive posture amid broader market challenges ( ). | The challenging macroeconomic environment has remained a consistent, negative backdrop with little change in sentiment across periods. |
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Gross Margin Sustainability
Q: What's driving the strong gross margin, and how sustainable is it?
A: Management highlighted that while North American sales contributed to the 46% gross margin, the main driver is the cost improvements and productivity gains achieved over time. Restructuring activities and better supply chain utilization have significantly increased margins, and these improvements are expected to continue. -
AT&T Contract Impact
Q: How will the AT&T contract ramp affect future revenues and margins?
A: The AT&T ramp-up boosted revenues in Q3, but management expects it to normalize in Q4 and continue at a steady level into next year. The rollout pace is coordinated with the customer, and while Q3 had high activity, they anticipate stabilization for the full contract rollout over several quarters. -
Cost Actions and Margin Targets
Q: Do you need more cost actions to reach your 15%-18% EBITA margin target?
A: With a flattish market and ongoing salary inflation, management acknowledges the need to adjust the cost base and continue cost actions into next year to meet margin targets. They are focusing on offsetting inflationary pressures and may invest selectively in R&D. -
India Market Outlook
Q: Will sales in India rebound materially in 2025?
A: Management is encouraged by recent contract wins with Vodafone Idea and Bharti but will provide specific guidance for 2025 in the next quarter. While 2024 saw sharp sales declines after a strong 2023, they expect the Indian market to be bigger in the future. -
Competitive Environment
Q: Any updates on the competitive environment in the RAN market, particularly Chinese vendors?
A: Management stated that the competitive environment remains largely the same as over the past few years, with no significant changes. They are maintaining commercial discipline and being thoughtful about contracts. -
Enterprise Wireless Solutions Slowdown
Q: What's causing the slowdown in Enterprise Wireless Solutions, and when will it recover?
A: The slowdown is due to a lower growth rate and a focus on profitable markets and product segments. New product launches caused a temporary dip before commercial deployments scale up. Management expects encouraging signs of recovery as new offerings gain traction. -
New API Monetization Company
Q: When will the new API monetization company operate, and how will Ericsson benefit?
A: The company is progressing through regulatory approval and aims to launch in the next few months. Ericsson will benefit by reselling aggregated network APIs through Vonage, moving up the stack and generating new revenues from network capabilities. -
Programmable Networks Impact
Q: How will programmable networks impact Ericsson's future?
A: Programmable networks will enable dynamic network slicing, offering new monetization opportunities. While closely linked to enterprise initiatives, management views them independently, expecting programmable networks to build a foundation for future growth.