Ericsson Sees Signs of Demand Recovery After Q3 Beat, Shares up

Sweden's LM Ericsson Telephone said on Tuesday the telecom equipment market is showing signs of improvement after reporting third-quarter core earnings and sales above expectations, helped by a rebound in demand for 5G gear in North America.

Its shares jumped 7% in premarket trade.

A fall in demand from North American mobile operators in the last two years had hit companies including Ericsson and Nokia Oyj, which had to look for growth in developing markets such as India, often at the cost of sacrificing profits.

"We see signs that the overall market is stabilising with North America, as an early adopter market, returning to growth," Ericsson CEO Borje Ekholm said in a statement.

Net sales declined by 4% to 61.8 billion Swedish crowns ($5.92 billion) but beat estimates of 61.6 billion. They were down 1% on an underlying basis.

"Net sales declined 'only' 1% year over year, which was a marked improvement compared to the 7% decline in Q2," Danske Bank Credit Research analyst Mads Lindegaard Rosendal said.

Sales in North America jumped more than 50% to 20.4 billion crowns.

"North America is recovering from very low levels, with last year's Q3 our lowest quarter, so growth in percentage points has become very large, but it is also a very strong quarter," finance chief Lars Sandström said in an interview.

One of the reasons for the growth in North America was the ramping up of sales to AT&T Inc, following its $14 billion, five-year deal last year.

"It has an impact... we also see other customers continue to invest and supporting the growth in North America," Sandström said.

"When it comes to other markets, Europe is flat, and the rest are declining, so we are still in a challenging market."

Sales in Europe and Latin America were down 2%, while other markets were down by double digits.

India, a bright spot last year, has slowed significantly. But the company has now got new contracts there from Vodafone Idea and Bharti Airtel.

Changes in the geographic mix led to a jump in adjusted gross margin to 46.3% from 39.2% a year earlier.

Ericsson's adjusted core earnings, excluding impairments, stood at 7.33 billion crowns compared with 3.9 billion crowns reported a year earlier and beat a 5.75 billion crown mean forecast in an LSEG poll of analysts.