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Ericsson warns of 2024 market decline despite Q4 earnings beat

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© Reuters. An Ericsson sign is seen at the third China International Import Expo (CIIE) in Shanghai, China November 5, 2020. REUTERS/Aly Song

By Supantha Mukherjee and Olivier Sorgho

STOCKHOLM (Reuters) -Ericsson said it expects further decline in 5G gear demand from mobile operators this year including in key growth market India, after beating fourth-quarter operating profit expectations on Tuesday helped by software sales. Telecoms equipment suppliers are expecting 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 normalising in India,” CEO Börje Ekholm said in a statement. After a few years of high demand for 5G equipment, buying by telecom providers slowed last year, prompting firms such as Ericsson (BS:) and Nokia (HE:) to lay off thousands of employees to save costs.

The company could look at further cost cuts this year and that could potentially include layoffs, Chief Financial Officer Carl Mellander said in an interview.

He added the company has not yet identified a specific number of headcount or billions set to be taken out.

Operating profit (EBIT) excluding restructuring charges fell to 7.37 billion crowns from 8.08 billion a year earlier, but topped the 6.92 billion expected by analysts in an LSEG poll, while net sales fell 16% in the quarter and missed estimates.

Ericsson’s shares were down 0.3% as of 1004 GMT after falling as much as 4.2% following the results.

Jefferies analysts acknowledged the sales “weakness” as operators spend less, but underlined a “healthy improvement” in margins, adding they expect profitability to continue improving with cost cuts.

Ericsson’s EBIT margin excluding restructuring charges rose to 10.3% from 9.4%, mostly due to higher-margin software sales and lower sales of 5G equipment in lower-margin markets such as India.

Ericsson should start seeing a boost in the second half of 2024 from its $14 billion deal with AT&T (NYSE:), which it won over rival Nokia and which involves building a telecoms network with a new cost-cutting technology called Open-RAN.

“There is a land-grab right now in Open-RAN…but it is a nascent technology, yet to be proven,” Analyst Paolo Pescatore at PP Foresight told Reuters.

He added Ericsson’s results were “disappointing” and that “lots of work needs to be done to get Ericsson back on track”. The company on Tuesday also appointed Lars Sandstrom as chief financial officer, replacing long-time company veteran Carl Mellander.

($1 = 10.4295 Swedish crowns)

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