Swedish telecommunications colossus Ericsson has claimed that the metrics disclosed in its Q2 financial report do not accurately reflect the underlying improvements being made by the vendor.
Ericsson has claimed that the company has steadied the ship from a financial perspective, executed its strategy, and is developing momentum and interest from new customers around its enhanced product portfolio.
However, it appears the vendor is attempting to divert scrutiny away from its Q2 earnings, which when examined indicate that revenue has remained broadly flat year-on-year and has encountered a steep widening in net loss.
In an official statement on the results, Ericsson President and CEO, Borje Ekholm said the company remain committed to its business strategy and added that the vendor was well on track in relation to its 2020 operating margin target.
In addition to this, the CEO of the struggling vendor said that it will continue to invest significantly in 5G in an effort to solidify its 5G portfolio. The full statement from the CEO about Ericsson’s Q2 results is outlined below:
Borje Ekholm, We continue to execute on our focused business strategy and are tracking well towards our 2020 target of an operating margin1) of at least 10%. The investments in technology leadership have resulted in increased gross margin1) to 37% (31%) and growth in segment Networks.
Customers turn to new technology in order to manage growing demand for data with sustained quality and without increasing costs. This, together with fixed wireless access - represent the first business cases for 5G. We will continue to invest in securing leadership in 5G. This includes further investments in R&D, to solidify our complete 5G portfolio, and investments in field trials. We also intend to selectively capture new business opportunities, through our 5G-ready 4G portfolio, to extend our footprint as operators prepare for 5G. We provide solutions for all frequency bands for 5G, which strengthens our global competitiveness.
We have good market traction in Networks, with a sales growth of 2%, particularly in North America where all major operators are preparing for 5G. Networks gross margin1) improved to 40% (36%). Digital Services is tracking towards a turnaround and gross margin1) improved to 43% (36%) YoY, and was stable QoQ. However, while losses decreased both YoY and QoQ, we still have a lot of work to do. The top priority is to turn around performance in the segment, but we are in parallel accelerating investments to make the portfolio 5G ready and cloud native. In Managed Services, gross margin1) improved to 14% (2%) supported by continued efficiency gains and customer contract reviews, resulting in a positive operating income. We have also on-boarded several new contracts in the quarter.
In segment Emerging Business and Other, we invest in strategic future growth areas such as Internet of Things (IoT). We see increasing momentum with several important customer wins with our connectivity platform in the quarter. However, sales are still low. Our media business generated a loss of SEK -0.4 b. in the quarter. We expect to close the announced divestment of Media Solutions, recently renamed MediaKind, by the end of the third quarter.
The SEK 10 b. cost reduction program, launched in Q2 2017, has been successfully completed. We reduced the total workforce by more than 2,000 in the quarter and by 20,500 in total as part of the program. These are tough but necessary actions to ensure competitiveness. Run-rate savings to date amount to more than SEK 10 b., and the effect is gradually becoming visible in the earnings, mainly through lower service delivery costs and common costs. Even though the cost reduction program is completed, our estimate for restructuring charges of SEK 5-7 b. for the full year remains, as we will continue our efficiency activities throughout the year.
Free cash flow improved to SEK -0.6 (-1.3) b. and our cash position remains strong. Our work to further strengthen the balance sheet continues.
We see strengthened momentum for 5G in the quarter and it is clear that our 5G-ready portfolio is attractive and competitive in the market. We have gradually improved the cost position and will continue to have a strict cost focus in order to further increase competitiveness and efficiency. We are confident in reaching our long-term target of at least 12% operating margin1) beyond 2020.