The publication of Ericsson’s first quarter 2022 results on April 14 was immediately followed by a drop of more than 7% in the price. Beyond slightly disappointing results, the prospect of an American sanction because of a corruption affair in Iraq which could involve the Islamic State has marked the spirits.
Ericsson’s results themselves, first
The company’s turnover increased by 11% compared to that of the first half of 2021, to stand at 55.1 billion Swedish crowns (5.35 billion euros). A progression well helped by the investments of the operators for their 5G networks, in America, in particular in the United States where Huawei is excluded from the market, and in Europe.
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In his letter to shareholdersCEO Börje Ekholm took the opportunity to recall the fundamentals of Ericsson, ” The mobile infrastructure activity will remain our core business and we will spare no effort to strengthen our position in this area. Our ambition is to continue the growth and development of this activity “.
The company’s net profit took a hit. It is down 8% to 2.9 billion crowns (280 million euros). This poor performance is partly explained by Ericsson’s departure from Russia, due to the invasion of Ukraine.
900 million crowns (87 million euros) have been provisioned to prepare for changes in the geopolitical situation. Ericsson is the preferred supplier of the number 1 and number 4 telecoms in the country, MTS and Tele2. 600 employees were automatically placed on paid leave.
Ericsson’s gross margin remained stable at 42.3%. It absorbed the additional costs linked to difficulties in the supply chain. The supplier says it has created a buffer stock of vital components, to ensure that it can meet its commitments to its customers, despite global supply difficulties.
By sector, the turnover of digital services fell slightly while that of Enterprise is growing strongly. Ericsson reports focusing on building a global network platform with unified interfaces with the help of recently acquired Vonage. Licensing revenues are also at half mast, but don’t panic, exclaims the company, the 1st quarter of 2022 is an in-between: some licenses have expired, are awaiting renewal and 5G license negotiations are underway. The results look better from the second quarter.
Sanctions hover over the company
Börje Ekholm insisted in his letter on the efforts of his company in research and development. The sum represents 10.7 billion crowns (1 billion euros), increasing. The company is focusing its efforts on Cloud RAN and next-generation ASICs – Application Specific Integrated Circuits.
Among the angry subjects, Börje Ekholm had no choice but to warn investors about the threats of sanctions hanging over the company. In February Ericsson admitted to having potentially paid bribes to the Islamic State in Iraq, between 2011 and 2019. Forced transparency, an investigation by the International Consortium of Investigative Journalists (ICIJ) came out a few days later .
Ericsson has already been fined for corruption by the US Department of Justice in 2021, she faces a second for the same reason in Iraq. The resolution of these violations should “ likely to include additional monetary payments, the magnitude of which cannot be reliably estimated at this time admits Börje Ekholm.
A real sword of Damocles over Ericsson’s head for the year 2022. The company is not at the end of its troubles since the Swedish justice system also announced the opening of an investigation on April 20. The company will have to pay for its more than problematic behavior.