Ericsson is one of the first major companies to report earnings this season, and it did so with surprisingly strong interim figures.
“We are delivering a strong third quarter, driven by our core business,” newly appointed CEO Per Narvinger told TT.
“Secure access”
But there are some obstacles. The company expects higher component costs to persist. Ericsson is competing for the same components as the major AI companies.
“Many of the components we use are also used in AI data centers,” Narvinger said.
Strong growth in AI has driven prices up, according to Narvinger.
“You even have to work to secure the availability of memory. But really, we’re seeing price increases for everything related to semiconductors,” Narvinger said, adding that Ericsson will need to raise prices.
After slower growth recently, Ericsson managed to increase sales by 7 percent.
“Demand from our customers is good,” Narvinger said.
Starlink a new competitor
But that sales growth is unlikely to last. Narvinger noted that the industry as a whole is stagnant. Profitability will also come under some pressure from the cost increases mentioned above. However, the Ericsson CEO is not currently planning any major new cost-cutting programs.
New players are also emerging. Elon Musk’s satellite company Starlink has bought licenses for more traditional terrestrial telecommunications.
It’s a tough competitor.
“Yes, but we are leaders in terrestrial networks. So it’s clear that if we use the networks more and offer better services to end users, we believe that ultimately what’s good for consumers is good for us,” Narvinger said, pointing to increased investment in indoor solutions, where satellites are at a disadvantage.
Making changes
Per Narvinger was cautious when asked whether the group would feel different under its new CEO.
“We are all different as leaders, but I have chosen to have a slightly smaller management team,” he said.
Another organizational change he is introducing is the scrapping of the unprofitable Enterprise business area. Its operations are now being incorporated into other parts of the group.
Ericsson’s adjusted operating profit came in at 10.1 billion kronor (about $960 million), compared with market expectations of 7.9 billion kronor (about $750 million). The company’s sales also exceeded analysts’ forecasts, according to Bloomberg.
The telecom company also expects the operating margin for its important Networks business area to be 49–51 percent in the fourth quarter. This is also above market expectations.
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