Ericsson celebrates ‘stabilizing’ market, pins hopes on programmable networks

While reporting significant sales declines in recent quarters, Ericsson could only insist that it reckons things will start to pick up on the second half of this year. Last quarter, organic sales were down 7% year-on-year and the quarter before that, down 14%. In Q3 2024 that positive momentum continues, which Ericsson reporting an organic sales decline of a mere 1%. At this rate we might even see growth before the end of the year.

“We see signs that the overall market is stabilizing with North America, as an early adopter market, returning to growth,” said Börje Ekholm, Ericsson CEO. “While the market development is ultimately in the hands of our customers, we are working to deliver operational excellence regardless of market conditions. Our Q3 results demonstrate our progress, with strong gross margin expansion and free cash flow, benefiting from our commercial discipline and operational efficiency actions.  

Ekholm was referring to the various margin metrics outlined in the first table below and detailed in the second. On top of revenues heading in the right direction, Ericsson has been through an extended period of cost cutting, resulting margins moving in the right direction and even a rare bit of profit this quarter. Ericsson's shares were up 10% at time of writing.

You can see how reliant Ericsson is on North American networks in the slide below, with that segment alone accounting for 14% of all sales and almost as much as networks in all of Europe and Latin America combined. We had our customary chat with Fredrik Jejdling, head of Ericsson’s networks business, and asked him how much of this North American improvement is down to the big deal with AT&T but he declined to be drawn beyond what was projected at the time of its announcement.

Instead, as is often the case Jejdling preferred to echo the words of his boss, with a focus on the potential of programmable networks. Here’s what Ekholm had said on the matter in his Q3 commentary: “We see increasing customer momentum around programmable networks that deliver differentiated performance, and expect further traction, supported by the JV we have announced with 12 of the world’s largest telecom operators. The JV will aggregate network APIs, accelerating commercialization and generating new opportunities for network monetization.”

Jejdling wouldn’t be drawn when we asked for evidence of this momentum, merely insisting they’ve been having some great chats with customers. He was keen to elaborate on the nature of the opportunity, however, stressing it’s key to ensuring that innovations done on the back of this generation of mobile tech generate better returns to operators than was the case with 4G.

“What gets generated in our industry remains in our industry – unlike with 4G,” said Jejdling. “By joining forces in the JV we announced we can expose those APIs to the global developer community and hyperscale to our customers.” A big technical distinction is that the APIs used to exploit 4G mobile broadband largely concerned smartphones, over which operators had little control. This time it will be different, reckons Ericsson.

We finished our chat by asking Jejdling of he was optimistic about coming quarters. Once more he opted to play a solid forward defensive stroke and deferred to analyst firms such as Dell’Oro whose day job it is to make such predictions. The only forecast Ericsson was prepared to make in its outlook was that “sales growth in Q4 is expected to be below average last three years seasonality.” As you would expect, that’s consistent with Dell’Oro’s projections.

There are small signs that the telecoms recession may be bottoming out and, if you look carefully enough at the last Ericsson slide blow, you might be able to detect the bottom of a curve. It may be telling that Ericsson is no longer banging on about data traffic growth as a major revenue driver, however, and it’s clearer than ever that Ericsson (and maybe the whole telecoms industry) is pinning all its hopes on the still undefined programmable networks opportunity.