Ericsson happy to remain on track with Q2 numbers

Swedish kit vendor Ericsson is determined to make life difficult for journalists these days by delivering solid but unspectacular quarterly numbers.

Gone, it seems, are the heady days of quarterly high drama that accompanied the end of the Vestberg era and the start of the Ekholm one. For the past year or so Ericsson has just boringly hit its numbers, sometimes beating them, sure, but never spectacularly so. Where’s the story in that?

We chatted to Head of Networks Fredrik Jejdling, who has stepped into the void left by the departure of Helena Norrman to handle the hacks at quarterly time. His core narrative was that Ericsson is laser-focused on hitting its 2020 target numbers and remains on course to do. We noted that a share-price fall of 5% indicates investors expected more and Jejdling, reasonably, declined to speculate on the workings of investors’ minds.

As ever Ericsson’s numbers are all about the networks division, which we focused on since Jejdling is in charge of it. As you can see from the tables below Networks accounted for the majority of the revenue and pretty much all of the growth. While North America continues to be by far its biggest region, Jejdling was keen to bring attention to North East Asia, which includes China and Korea, as a significant source of growth. He also echoed his CEO’s regular comments that global regulators could do a better job of making more spectrum available.

The big macro driver for this growth was, of course, 5G. Jejdling said client conversations are much more focused on upgrading to 5G than they were only recently and indicated that interest in is more globally ubiquitous than is was for 4G at a similar stage. He did stress however, in classic Ericsson style, that it’s still early days and nobody’s getting too carried away. “As long as we feel we’re meeting the key milestones on the 2020 track then we’re quite happy,” said Jejdling.

We didn’t really get into the other business units, so here’s some of CEO Börje Ekholm’s statement accompanying the quarterly report. “We see strong momentum in our 5G business with both new contracts and new commercial launches as well as live networks. To date, we have provided solutions for almost two-thirds of all commercially launched 5G networks.

“5G momentum is increasing. Initially, 5G will be a capacity enhancer in metropolitan areas. However, over time, new exciting innovations for 5G will come with IoT use cases, leveraging the speed, latency and security 5G can provide. This provides opportunities for our customers to capture new revenues as they provide additional benefits to consumers and businesses.

“In Digital Services we continue to execute on the plan to reach low single-digit margins for 2020. In Managed Services the strategy is to enhance the customer offering by relying more on automation, machine learning and AI, which will longer-term change and improve the margin profile of the business. Near-term margins are negatively impacted by the increase in R&D investments.

“Organic sales growth in Emerging Business and Other was 24% driven by a continued growth in iconectiv. In this segment we invest in initiatives that aim to scale and help create future business for Ericsson. With the exception of iconectiv, the portfolio is still in an early investment phase.”

Ericsson’s share price was down 6% at time of writing, which seems a bit harsh, but that probably reflects disappointment from investors that all the early 5G hype hasn’t translated into even bigger gains and a more bullish outlook. But 5G was never going to result in sudden massive spikes in investment and, however difficult it may find it to do otherwise, Ericsson is probably sensible to caution against too much exuberance at this stage.

Ericsson q2 19 numbers

Ericsson q2 19 numbers segments

Ericsson q2 19 numbers networks

Ericsson q2 19 numbers digital

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Ericsson q2 19 numbers other

Broadcom hit by friendly-fire in US/China trade war

Broadcom has unveiled its financial results for the last three months, though it isn’t the rosy picture some might have hoped for as ‘continued geopolitical uncertainties’ weigh heavy on the spreadsheets.

Although total revenues were up 10% from the same period of 2018 to $5.5 billion, the team has lowered its forecast for the remainder of the financial year. The new forecast for 2019 is now $22.5 billion, $2 billion lighter than the team was initially aiming for.

“We currently see a broad-based slowdown in the demand environment, which we believe is driven by continued geopolitical uncertainties, as well as the effects of export restrictions on one of our largest customers,” said CEO Hock Tan.

“As a result, our customers are actively reducing their inventory levels, and we are taking a conservative stance for the rest of the year.”

Although not mentioned here, guessing who Tan is referring to is not the most taxing of tasks. While Broadcom does not have as much exposure to Huawei as some US firms, it is its biggest customer; the unintended consequences (or at least we hope they were unintended) of President Trump’s Executive Order continue to pile up.

Estimates might vary, though the general consensus is that Huawei, the world’s largest manufacturer of telecoms equipment, purchases around $20 billion of semiconductors each year. Broadcom is being impacted here, though Qualcomm, Intel, Xilinx and several other smaller firms will also be feeling the pinch.

Although the year-on-year stats are still encouraging, investors might be a bit turned off by the sequential 4.7% decrease in revenues. Net income stood at $691 million, though this is not comparable to the year as this was the period Broadcom realised the benefits of changes to tax laws in the US.

The last couple of years have certainly been an interesting saga for Broadcom. Having shifted its HQ to the US in an effort to buy favour with authorities while attempting to acquire Qualcomm, the transaction was eventually blocked by the White House on the grounds of national security. With financials now being hit because of the anti-China mission of the Oval Office, Tan must be wondering why he bothered to cosy up with the US.

Ciena bags 20.5% growth perhaps thanks to Huawei dilemma

Optical networking company Ciena posted positive results for the first quarter of 2019, with total revenues of $778.5 million beating analyst expectations.

There have been whispers in corners of various conferences that a Huawei ban could benefit some, and it may well be having a positive impact for Ciena. While there are numerous other companies which would compete with Huawei in the optical equipment segment, with Ciena one of the few ‘pure-play’ companies it might have a more notable impact on the financials.

That said, irrelevant of where the favourable fortune has come from investors will be happy. $778.5 million represents a 20.5% year-on-year increase for the first quarter, while nearly all geographical markets have shown healthy growth.

“We began fiscal 2019 with a very strong first quarter performance, including outstanding top and bottom line growth as well as continued market share gains,” said Gary Smith, CEO of Ciena. “We believe that the combination of our leading innovation and positive industry dynamics will enable us to further extend our leadership position.”

Net income for the quarter stood at $33.6 million, though this is incomparable to the same period of 2018 which registered a loss of $473.4 million thanks to President Donald Trump’s US tax reform.

Looking at the regions, in the US, a market which now accounts for 62% of the company’s total revenues, the earnings grew just over 20% to $485.5 million, while 20% growth was also registered in the APAC region. The big success story however was in Europe, where the team grew the business by 32% to $129.2 million. This is still only 16.6% of the total haul for Ciena, but more geographical diversification will certainly be welcomed.

For Ciena, Europe could be a very interesting market over the next couple of months. With Huawei coming under increasing scrutiny globally, telcos will look to further diversify supply chains to add more resilience and protect themselves from potential government bans. While the anti-China rhetoric being spouted out by the White House is losing momentum, the European Union is reportedly looking some sort of ban, even if this puts the Brussels bureaucrats at odds with some member states.

For such vast investments, telcos will be looking for certainty and consistency from government policies. When looking at Huawei as a potential vendor, telcos will naturally be nervous, even if they don’t want to admit it.

With Huawei’s ban set to have little impact on the US market, it is not a major supplier to the market historically, the Europe could be a hidden goldmine for Ciena.

Interestingly enough, this scenario also seems to be paying off dividend in the APAC markets as well. Smith notes the success in the APAC region has come from Australia, Japan and Korea, three markets where Huawei has either been explicitly banned or is receiving a rather frosty welcome.