Telefonaktiebolaget LM Ericsson (NASDAQ: ERIC) recently released its second-quarter results of 2021. This came just days before signing an $8.3 billion agreement with Verizon.
Continued growth despite rocky relations between China and Sweden
According to Ericsson’s president and CEO, Borje Ekholm, their strong business continued with steady organic sales growth of 8% in the second quarter. Despite a 2.5 billion Swedish Krona decline in sales in mainland China, which usually accounts for around 10% of their sales revenue. Networks continued to grow in market share with some notable wins.
Group gross margin increased to 43.4%, up from 38.2%. Ericsson is well-positioned to take advantage of market momentum with their 5G product portfolio and cost structure. However, Borja continued by saying that it is essential to expect a lower market share in mainland Chins, where policies on Swedish communications might influence market share awards.
Network sales grew organically by 11%, despite low er volumes resulting from delayed 5G deployment in China. This growth reflects the high levels of activity in most markets. The North-East Asian market, excluding China, saw growth in 5G volumes. The gross margin rose to 47.9%, up from 40.5%. Ekholm remarked that through proactive and resilient measures for supply chain dominance, they invested in R&D to accelerate product development. He adds that the company strengthened its Cloud-RAN portfolio further with 5G mid-band and massive MIMO support for additional network performance. Cloud RAN is set to enable service providers to grow their networks towards cloud-native technologies and open network architectures, solving the demand for network flexibility.
In Digital Services, there was continued strong momentum in 5G Core as the company increased investments in cloud-native 5G native portfolio R&D. Organic sales were stable in the quarter. Excluding China, there was a 5% growth. However, the gross margin dropped to 37.9% from 43.6%.
Expected impact of the new wave of COVID 19
The executive also noted that while the rest of the world is gradually recovering from COVID 19, there seems to be a surging number of cases in South East Asia, resulting in slower recovery for the impacted countries.