Ericsson lifts sales but corruption probe takes a big bite out of earnings

Ericsson's sales were boosted by a 5G takeoff, but it made a net loss as it set aside 12 billion kronor to settle a US corruption investigation.

Ericsson lifts sales but corruption probe takes a big bite out of earnings
Ericsson's factory in China. Photo: Magnus Hjalmarson Neideman/SvD/TT

The company, which is competing against China's Huawei and Finland's Nokia in supplying operators with the backbone of the latest generation mobile telephone networks, said sales of 5G equipment helped drive the six percent increase in overall sales in July through September from the same period last year.

“We continue to see strong momentum in our business, based on the strategy to increase our investments for technology leadership, including 5G,” chief executive Börje Ekholm said in a statement.

“We saw organic sales growth of three percent in the quarter, driven by the early adopters of 5G, in North America and North East Asia,” he added.

Organic sales restates figures to eliminate changes in exchange rates to help firms compare their performance between periods.

But the company reported a net loss of 6.2 billion kronor ($636 million), compared to a profit of 2.7 billion kronor in the same period the previous year.

A 12 billion kronor provision that the company announced last month to cover the penalty Ericsson expects to receive in a US corruption investigation was responsible for the loss.

Ericsson has been cooperating since 2013 with an investigation by the US Securities and Exchange Commission (SEC) and, since 2015, with an investigation by the US Department of Justice.

Higher sales target

The investigation covers a period up to the first quarter of 2017, and involves operations in six countries: China, Djibouti, Indonesia, Kuwait, Saudi Arabia and Vietnam.

The company has acknowledged there had been several breaches of its code of business ethics.

Ericsson noted that its underlying profitability is improving, pointing to an increase in its gross margin – what's left after deducting production costs and sales – had risen to 37.8 percent from 36.9 percent, once restructuring charges were excluded.

The firm raised its sales target next year to 230-240 billion kronor, from the 210-220 billion previously announced.

Ericsson said that at the end of September it had announced commercial 5G deals with 27 named operators and supplied equipment to 19 live 5G networks. An Ericsson executive said last week it had signed a total of 47 5G contracts.

That puts it far behind Huawei, which said on Wednesday that it had already supplied 400,000 base stations to 56 operators and had signed around 60 5G contracts in total.

Finland's Nokia said in June it had 42 contracts.

Ericsson shares jumped 6.5 percent in morning trading while the Stockholm exchange's main index was up 0.6 percent overall.

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