Ericsson (NASDAQ:ERIC) Q4 2019 Earnings Conference Call - Final Transcript

Jan 24, 2020 • 03:00 am ET

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Ericsson (NASDAQ:ERIC) Q4 2019 Earnings Conference Call - Final Transcript

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Presentation
Operator
Operator

Welcome to Ericsson's Analyst and Media Conference Call for the Fourth Quarter Reports. [Operator Instructions] Peter Nyquist will now open the call.

Executive
Peter Nyquist

Thank you operator and hello everyone and welcome to today's call, Q4 call. With me here today, I have our CEO Borje Ekholm and our CFO Carl Mellander. So this short statement first. During the call today, we will be making forward-looking statements. These statements are based on current expectation, certain planning assumptions, which are subject to risks and uncertainties. Actual results may differ materially due to factors mentioned in today's press release and discussed in this conference.

We encourage you all to read about these risks and uncertainties in our earnings report, as well as in our annual report. With that said, I would like to hand over the call to our CEO Borje Ekholm. So please Borje.

Executive
Borje Ekholm

Thanks, Peter. Welcome and thank you for joining us for this report for the fourth quarter. And again, Q4 marks another quarter of execution on the focus strategy, building on technology leadership, cost leadership, product-led solutions and global skill and scale. We continue here to benefit from our strength and competitiveness as we grow faster than the market with [Phonetic] maintain strong gross margin. Our underlying business fundamentals remain strong and we feel we have a very solid competitive position. Topline grew organically during 2019 with 4% and 1% during 4Q. We are in the beginning of a technology shift and our investments to lead in 5G is now starting to yield results.

Today, we have 79 contracts and 24 live 5G networks, and we see that we now win new contracts based on our leading technology. The rollout of 5G continues in North America with good underlying growth. However, [Indecipherable] related to the announced merger has reduced sales in one account during the Q4. However, the decline in North America was compensated by good demand in Northeast Asia and the Middle East. We maintained a solid gross margin of 37.1% overall and 41.1% in Networks. The sequential reduction in gross margin in Networks was fully attributable to the Kathrein business that we acquired during the quarter.

When we win new footprint, the overall margin in those contracts are positive and contributes to our long-term margin targets, but the initial margin is challenged. However, we also see during this last quarter that the initial low margins have been fully compensated by operating leverage, showing the strength of our underlying business.

As I said, the acquisition of Kathrein closed during the quarter. This is a very important acquisition for us, as it will allow us to strengthen our antenna capabilities and improve our ability to supply integrated side solutions. We're now working on integrating Kathrein into Ericsson and thereby establishing and building a leading portfolio of antenna solutions. But the contribution during the fourth quarter was a negative on our operating margin. So if you look for the operating margin, excluding restructuring and defined [Phonetic] to the US authorities, it was