Ericsson grapples with Q3 downward spiral in network spending

With 5G networks largely deployed throughout North America and other mature markets, operators have dramatically slowed their network investments causing Ericsson and other vendors to feel the pain from that sudden decline.

Ericsson reported a net loss of $2.8 billion (SEK 30.5 billion) in Q3, and said that net sales decreased by 5% to $5.91 billion (SEK 64.5 billion), down from $6.23 billion (SEK 68 billion) in the same quarter last year.

The company’s networks business declined by 16% year over year despite the fact that sales in Southeast Asia, Oceania and India almost doubled in the quarter. However, the growth in those markets couldn’t offset the sharp decline in North America, where network sales declined 60% in the quarter to $1.24 billion (SEK 13.5 billion), down from $2.43 billion (SEK 26.5 billion) in the same quarter in 2022.

Ericsson’s cloud software and services unit was one bright spot for the company with its quarterly sales up 10% to $1.4 billion (SEK 15.6 billion). Ericsson said that it expects this unit to break-even for the full-year 2023 and improve going forward.

Ericsson declined to provide guidance beyond Q4 but said that for now it is planning to move forward assuming that the current market conditions will continue into 2024 and that means it will focus on reducing costs. The company now expects to reduce its costs by $1.1 billion (SEK 12 billion) in run-rate savings by year-end.

The company’s stock fell 7% when the Stockholm market opened and at mid-day it was still trading 5% lower than the previous day.

Ericsson’s dismal Q3 results were released just days after the company announced it was recording an impairment charge of $2.92 billion (SEK 32 billion) in Q3 related to the impairment of goodwill attributed to the Vonage acquisition. Ericsson purchased Vonage in 2022 for about $6.2 billion.

During Ericsson’s Q3 earnings call with investors, Ericsson President and CEO Borje Ekholm tried to spin a positive light on the company’s 60% drop in network sales in North America by saying that the company is confident that a recovery in network spending will happen because operators need to invest in their networks so they can manage growth in data and keep their network quality strong, however he declined to provide any feedback on when the recovery may happen. “A recovery will come but the timing is in our customers’ hands,” he said.

Ekholm also touted Ericsson’s underlying strategy with its Vonage acquisition and its development of a platform business that will deliver new growth. Basically, Ericsson believes that by revamping Vonage’s communications platform it can create a suite of network functions with open APIs that developers can then use as a platform to more easily create applications.

Ekholm said that providing connectivity alone is no longer good enough and that operators need to open up the ecosystem to developers. “We are making networks fully programmable with open interfaces and open APIs to make continued innovations,” Ekholm said. Adding that Vonage alone has a developer community of 1.4 million developers that will help drive this transformation.

However, Ekholm noted that this transformation won’t happen overnight. He said Ericsson expects to see some revenues from the first network APIs later this year and into 2024, but said those revenues will be limited. The first quantifiable revenues won’t happen until 2025, he added.

Ericsson isn’t the only wireless company touting the benefits of open APIs. At Mobile World Las Vegas 2023 last month the GSMA said its Open Gateway Initiative, which is supported by Ericsson, now has 35 mobile operators involved in the project, and those operators represent 60% of all mobile subscribers.