Ericsson's Q4 Sales Plunge 16% As Global Challenges Weigh, Forecasts Further Decline Outside China

Ericsson ERIC reported a fourth-quarter FY23 sales decline of 16% year-on-year to SEK 71.9 billion versus the consensus of $7.0 billion.

Group organic sales declined by 17% Y/Y. Networks’ organic sales decreased by -23% as customers focused on cash flow. Sales in India declined Q/Q, partly mitigated by a 7% organic growth in Enterprise.

Ericsson reported an EPS of SEK 1.02 versus SEK 1.82 last year versus the consensus of $0.16. 

Adjusted gross margin of 41.1% declined 40 bps Y/Y due to lower sales and lower gross margin in Networks. The normal gross margin declined 160 bps to 39.8%.

Adjusted EBIT margin improved by 90 bps to 10.3%, primarily due to higher-margin software sales and lower sales of 5G equipment in lower-margin markets such as India. Adjusted EBITA margin improved by 60 bps to 11.4%.

Free cash flow before M&A was SEK 12.5 billion.

Dividend: The board will propose a 2023 dividend per share of SEK 2.70.

Outlook: In 2024, the company expects the market outside China to decline further, with similar uncertainties to those experienced in 2023.

For FY24, Ericsson forecasts a seasonal trend with Networks sales declining by 25% and Cloud Software and Services by 34% on average between the fourth quarter of fiscal 2023 and the first quarter of fiscal 2024 over the past three years. The company expects Networks gross margin of 39-41% in the first quarter.

Ericsson expects a further decline in 5G gear demand from mobile operators this year, including in India’s crucial growth market.

Telecoms equipment suppliers expect a challenging 2024 as 5G equipment sales, a key source of revenue, are slowing in North America, while India, a high-growth market, is also set for a slowdown.

“We expect the current market uncertainties to prevail into 2024 with a further decline of the RAN (Radio Access Network) market outside China as our customers remain cautious and the investment pace is normalizing in India,” Reuters cites CEO Börje Ekholm’s statement.

Analysts expect Ericsson to get a boost in the second half of 2024 from its $14 billion deal with AT&T Inc T, which involves building a telecoms network with a new cost-cutting technology called Open-RAN.

The first quarter consensus revenue and EPS are $5.51 billion and $0.05.

CFO: Ericsson named Lars Sandström of Getinge as the CFO, effective April 1, 2024, succeeding Carl Mellander, who shared his departure plans in April 2023. Mellander will leave Ericsson at the end of the first quarter of 2024 after being with Ericsson for over 25 years.

Price Action: ERIC shares traded higher by 1.37% at $5.92 premarket on the last check Tuesday.

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