Ericsson released its financial report for the first quarter of 2023. The financial report shows that total sales in the first quarter increased to 62.6 billion Swedish kronor (approximately 41.74 billion RMB), a year-on-year increase of 14%. Net sales adjusted for comparable units and currency (organic sales) were flat year-over-year. Gross margin, excluding restructuring charges, was 39.8% in the first quarter, driven primarily by changes in the network business mix. The reported gross margin was 38.6%. In the first quarter of 2023, Ericsson achieved a net profit of SEK 1.6 billion (approximately RMB 1.0667 billion), a year-on-year decrease of 46%. Due to the increase in operating costs, the free cash flow before the M&A transaction was -8 billion Swedish kronor (approximately -5.33 billion RMB).
Highlights of the first quarter earnings report are as follows:
Group organic sales were flat compared to the same period last year. Organic sales in the Networks business were down 2%, as expected, due to lower carrier capital expenditures and inventory optimization. But this decline was offset by growth in other businesses. Overall sales reported an increase to SEK 62.6 billion.
Total revenue excluding restructuring charges was up year-on-year at SEK 24.9 billion, mainly driven by the enterprise business, cloud software and services business. Reported total revenue was slightly higher than the same period last year at SEK 24.2 billion.
Gross margin, excluding restructuring charges, was 39.8%, mainly driven by changes in the network business mix. Reported gross margin was 38.6%.
Earnings before interest, taxes, depreciation and amortization (EBITA) excluding restructuring charges was SEK 4.8 billion. Earnings before interest, taxes, depreciation, and amortization (EBITA) amounted to SEK 3.8 billion.
Net income was SEK 1.6 billion. Diluted earnings per share (EPS) was SEK 0.45.
Excluding M&A transactions, free cash flow was SEK -8 billion. Cash flow is impacted by increased working capital. Net cash at March 31, 2023 was SEK 13.6 billion, compared to cash at December 31, 2022 of SEK 23.3 billion.Ericsson said it was already accelerating its cost-savings program while identifying opportunities for an additional SEK 2 billion in savings, which is expected to reduce costs by SEK 11 billion by the end of the year. Taking into account the increased scope and cost of the European project, initial estimates of full-year restructuring charges could be around SEK 7 billion, more than half of which may be costed in the second quarter. By 2024, restructuring charges are expected to return to normal levels of approximately 0.5% of sales.
By the end of the first quarter, Ericsson had completed the sale of its IoT platform business, reducing the quarterly loss by approximately SEK 250 million.
For the second quarter, Ericsson expects Group EBITDA margins to be in the mid-single digits. A gradual recovery is expected in the second half of 2023, mainly as companies expect inventory adjustments to be completed and cost-saving measures to start to pay off on the income statement.
Ericsson is on track to reach long-term interest-tax revenue by 2024 with an expected recovery in the mobile network market, turnaround in cloud software and services, product mix realignment, R&D productivity improvements, IP revenue growth, and cost reductions by 2024 Lower end of target range for EBITDA of 15-18%.
