Ericsson, a leading telecommunications-equipment company, is bracing for a prolonged downturn in the mobile-network market, projecting a continued decline in sales at least until the end of the year. This outlook stems from a combination of factors, including cautious spending behavior among customers and a slowdown in investments, particularly in crucial markets such as India.
During the first quarter, Ericsson’s mobile networks unit experienced a substantial 21% decrease in sales compared to the previous year. This decline was particularly pronounced in regions like India and North America. While Ericsson had initially benefited from a surge in orders in North America during the early stages of 5G deployment, the company has since witnessed a sharp contraction in business activity in this region. Furthermore, a significant portion of Ericsson’s business in the past year came from developing markets like India, where investment levels have begun to normalize following a period of rapid expansion.
In the first quarter, sales in South-East Asia, Oceania, and India plummeted by 42%, primarily due to reduced investments in the Indian market. Despite industry forecasts suggesting a modest decline in the global network equipment market for 2024, Ericsson remains cautious about the future trajectory, citing persistent hesitancy among customers to make significant investment commitments and the ongoing adjustment of investment levels in India.
CEO Borje Ekholm has expressed expectations for further declines in the radio access network market, at least in the short term. However, Ericsson believes that sales will begin to stabilize in the second half of the year. This optimism is driven by factors such as a recently secured substantial network gear contract from AT&T and the expected normalization of customer inventory levels in North America.
Despite the challenging market conditions, Ericsson managed to exceed its guidance for adjusted gross margin in the mobile networks unit, thanks to an improved business mix and operational efficiencies. The company remains committed to cost-cutting initiatives, having identified approximately $1 billion in cost reductions last year, including workforce reductions.
In terms of financial performance, Ericsson reported a net profit attributable to shareholders of SEK2.56 billion, representing an increase from the previous year. However, sales declined by 15% to SEK53.33 billion, highlighting the headwinds faced by the company in the current market environment.
Looking ahead, Ericsson intends to continue implementing efficiency measures to navigate the evolving landscape of the mobile-network market, focusing on maintaining competitiveness and adaptability in the face of ongoing challenges.