Ericsson (NASDAQ:ERIC) Q3 2018 Earnings Conference Call Transcript

Oct 18, 2018 • 09:00 am ET

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Ericsson (NASDAQ:ERIC) Q3 2018 Earnings Conference Call Transcript

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Presentation
Operator
Operator

Welcome to Ericsson's analyst and media conference call for the third quarter report. To view visual aid for this call, please log on to www.ericsson.com/press or www.ericsson.com/investors. (Operator Instructions) As a reminder, replay will be available one hour after today's conference.

Peter Nyquist will now open the call.

Executive
Peter Nyquist

Thank you, Mark, and welcome to the third quarter conference call. With me here in the room, I have our President and CEO, Borje Ekholm; and our CFO, Carl Mellander.

(Forward-Looking Cautionary Statements)

With that said, I would like to hand over the call to Mr. Borje Ekholm.

Executive
Borje Ekholm

Thank you, Mr. Nyquist. So welcome, everyone, to our Q3 report. During the third quarter, we continue to execute on our focused strategy, making good headway. We have a very strong product portfolio today. And that in combination with a good cost structure makes us very competitive. And that's what you see us delivering on during the third quarter.

Then move to the first slide. What we saw now is that 5G is becoming a commercial reality with the first deployment in North America. We're seeing very good momentum in our 4G portfolio. That, of course, is 5G ready as a result of our upgrade. So operators can thereby modernize networks without wasting CapEx and be prepared for 5G. We see very good momentum on 5G in North East Asia but also in North America, as those two areas leading the way. But it's encouraging to see momentum also increasing in Europe. So it's increasingly becoming (inaudible), 5G is not only a buzzword, but it's actually true reality.

During the third quarter, it was the first quarter since the third quarter 2014 that we showed growth. It's a small number, but we have had headwind from contract exits during the last year that's impacting our top line. But it's really organic effect adjusted growth of 1%. It's driven by network that grew 5%, but it's still encouraging that we have turned a trend of a shrinking top line. Maybe more important, we have achieved a profitability on group level on net income, the first net income posted ever since beginning of mid-2016. And we do that despite some substantial provisions during the quarter that we will outline during the presentation.

Digital services continue to improve and on the journey towards profitability, negatively impacted by substantial provisions here on large digital transformation project. But it's aided or helped by significant cost-out in common cost as well as R&D.

We will spend some time updating you on the SEC DOJ investigation as well where we are engaged with authorities to try to find a resolution. And we are well underway towards achieving our target of 10% operating margin in 2020 and 12% beyond that.

So with that, let's move into some of the overall numbers, where you can see that we continue to improve our gross margin. And that is done despite provisions, but we see that the strategy of investing in R&D to support and improve