Ericsson’s core profit misses as rising costs hit margins

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The Ericsson logo is seen at its headquarters in Stockholm, Sweden, June 14, 2018. REUTERS/Olof Swahnberg

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STOCKHOLM, July 14 (Reuters) – Ericsson (ERICb.ST), the Swedish telecoms equipment company that is under investigation for corruption, reported higher second-quarter core profits on Thursday , but fell short of expectations as margins were impacted by increased component and logistics costs. .

Rising inflation, a shortage of chips and Russia’s invasion of Ukraine drove up costs and pushed the company’s gross margin down to 42.1% from 43.4%. It has also been hit by patent disputes, including one with Apple (AAPL.O), which cut its high-margin royalty income by 0.9 billion Swedish kronor ($85 million).

“The global supply chain situation remains challenging…this is driving cost increases which we are working to mitigate as much as possible,” chief executive Borje Ekholm said in a statement. “As contracts expire, we aim to adjust prices.”

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The company is also battling fallout from a corruption scandal related to its work in Iraq that led the US Department of Justice (DOJ) and Securities and Exchange Commission (SEC) to open investigations into the company.

Ericsson said he was engaging with the DOJ and SEC, and said the outcome of the cases could not yet be assessed.

Another investigation by a US security panel has delayed the closing of its $6.2 billion acquisition of Vonage. Ericsson now expects it to close in July.

Despite these distractions, Ericsson’s sales in North America and Europe rose as telecom operators rushed to upgrade their networks, helping Ericsson and rival Nokia (NOKIA.HE).

“We have a 39% market share, excluding China, of the global market, and that’s several percentage points higher over the last period,” chief financial officer Carl Mellander told Reuters.

Ericsson’s quarterly revenue rose from 54.9 billion to 62.5 billion crowns, beating estimates of 61.45 billion crowns.

Quarterly adjusted operating profit rose to 7.3 billion crowns from 5.8 billion crowns a year earlier, missing the average analyst forecast of 8.01 billion crowns, according to Refinitiv data.

($1 = 10.5908 Swedish kronor)

($1 = 10.5908 Swedish kronor)

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Reporting by Supantha Mukherjee in Stockholm, editing by Anna Ringstrom

Our standards: The Thomson Reuters Trust Principles.

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