North America rebound provides much needed boost for Ericsson

The ongoing telecoms recession ensured Ericsson would register yet another year-on-year fall in sales in Q2 but it was a bit less than expected and a significant improvement on the previous quarter. The main reason was a return to growth in the critical North American networks segment, where it seems the big operators have started loosening their purse strings after a year or so of austerity.

“In Q2, we maintained our leading market position, returned to growth in North America, and delivered strong gross margin expansion and free cash flow,” said Ericsson CEO Börje Ekholm. “We remained focused on matters in our control, to optimize our business amid a challenging market environment, with industry investment levels unsustainably low. 

“Vonage remains foundational to build out a global platform for network APIs. This is critical for the digitalization of enterprises and society, and will drive future growth in the telecoms industry. We recorded an impairment charge in Q2, as market growth in the current business has slowed, and we must now refocus on improving performance. 

“Our results highlight our competitiveness, and we will continue to take proactive steps to position the business for longer-term success. We expect market conditions to remain challenging this year, as the pace of India investments slow, however our sales will benefit during the second half from contract deliveries in North America.”

Vonage continues to be an albatross around Ekholm’s neck, with the most recent write-down of its record acquisition now valuing it at just a third of the price Ericsson paid for it. He has little choice but to continue to insist the investment will come good eventually but that seems like a distant and unlikely prospect right now.

For the foreseeable future, however, Ericsson remains reliant on mobile networks kit to pay the bills. While it will be relieved by the improvement in North America, everywhere else remains in the doldrums and the perpetual data traffic growth that underpins much of Ericsson’s long-term optimism looks increasingly shaky. On the other hand, Ericsson’s share price is at its highest level since October 2022, so it seems to be playing a weak hand well.