Cautious optimism from Ericsson on the back of ‘strong’ Q4 numbersCautious optimism from Ericsson on the back of ‘strong’ Q4 numbers

“Q4 marks a strong end to 2024 for Ericsson,” opened Ericsson CEO Börje Ekholm in his comments on the latest numbers. Under different circumstances, 2% year-on-year organic sales growth may elicit a more nuanced reaction, but this marks a significant inflection point for a company that has seen sales declines in many of its previous quarters. So we won’t begrudge Ekholm his relief at turning the corner.

“We progressed well against our strategic plan and generated strong free cash flow,” continued Ekholm. “Momentum around programmable networks for differentiated performance continued to build, and customers increasingly recognize the benefits of making mobile networks accessible through APIs… Our commitment remains to put high-performing, programmable and differentiated networks at the center of the digitalization of enterprise and society.”

In many ways this was a continuation of the previous quarter’s narrative, so at least there were no nasty surprises. As an exemplar for Ericsson’s cunning plan in action, Ekholm pointed to the deal announced with Mas Orange late last year, which seems to be future-proofed for the programmable networks that Ericsson is still pinning its long-term hopes on. But, in the absence of explicitly attributed revenues, we’re still having to take Ekholm’s word for it.

Here's a diagram Ericsson published last year summarising the open programmable network concept and you can drill down into it via this recent industry analyst event if you want. Our feeling is that Ericsson still has some work to do to make this concept both clearer and more compelling. Again, that’s made all the more challenging by the absence of hard proof-points.

We had our usual chat with the head of Ericsson’s networks division, Fredrik Jejdling, and asked him if he’s concerned about Ericsson’s increasing reliance on US operator network spend, which single-handedly dragged the company’s Q4 sales into the black. Unsurprisingly he’s not and is sanguine about the regional picture, reasoning that it’s a largely cyclical thing. Nonetheless, if you compare this quarter’s regional summary with the previous one, the direction of travel is clear.

Given Ericsson’s commendable margin and cash flow improvements, we asked if there are plans to use some of this spare money on increased R&D spend. “I would expect that to be fairly stable at this stage,” said Jejdling, indicating that the returns on such spend at this point in the telecoms business cycle might not be great and that the nature of 6G is still unclear. Having said that, he said he expects progress to be “a stable and gradual evolution”, rather than another once-in-a-decade upgrade capex frenzy.

We concluded by asking about the business outlook, with a nod to the recent unprecedented collaboration with Nokia to implore Europe to be a bit more helpful. Jejdling said he’s provisionally counting on 2% global RAN market growth in 2025 but didn’t offer any regional perspectives. He did add, however, that “there’s a danger that Europe could be on the back foot,” if the EU doesn’t wake up and smell the coffee. Don’t hold your breath for that, Fredrik.

Ericsson’s shares took a hit today because quarterly profits apparently fell short of expectations. But on the whole, it seems to have done a good job of adapting to underlying market realities and seems to be getting more than its fair share of the business wins available. Even after the hit, those shares are still at their highest level for almost three years, so maybe markets are starting to buy this programmable networks story.