By Dominic Chopping
STOCKHOLM–Ericsson AB’s first-quarter net profit missed expectations because of a delayed contract, expired licensing deals, and the previously announced 900 million kronor ($95 million) provision after suspending its Russian business, the company said Thursday.
However, the company won market share in the quarter after having strong sales of 5G equipment in North America, Europe and Latin America, as overall sales of network equipment grew organically by 4%, it said.
The Swedish telecom-equipment company reported net profit attributable to shareholders of SEK2.94 billion compared with SEK3.17 billion a year earlier, as sales rose 11% to SEK55.06 billion.
Analysts polled by FactSet had expected net profit of SEK4.07 billion on sales of SEK54.14 billion.
The company earlier this week said it is suspending its business in Russia indefinitely in light of recent events in Ukraine and the subsequent sanctions imposed on Russia. Ericsson has around 600 employees in Russia spread across four locations in the country and all personnel have been placed on paid leave.
Ericsson said the quarter was also weighed by a certain SEK1 billion annual software contract that is normally recorded in the first quarter, but this year has been delayed into the second quarter. Higher research-and-development costs, the expiration of patent deals that are pending renewal, and investments in supply chain also had an effect, the company said.
“In light of the global supply chain challenges, we decided to create a buffer of vital components in order to secure that we meet customer delivery commitments,” Chief Executive Borje Ekholm said.
Ericsson is facing scrutiny over previously disclosed corporate governance issues in Iraq, where an internal investigation found evidence of historical corruption, and the U.S. Department of Justice has stated that the company’s handling of the matter breached a Deferred Prosecution Agreement.
“The resolution of these matters could result in a range of actions by the DOJ, and may likely include additional monetary payments, the magnitude of which cannot at this time be reliably estimated,” Mr. Ekholm said.
Ericsson still targets a group earnings before interest and tax margin of 15%-18% within two to three years. The company now forecasts the radio access network market growing by 5% this year compared with 3% previously.
Write to Dominic Chopping at email@example.com