Dow Jones Newswires: Ericsson lifts sales, margin targets as operators continue 5G spending spree

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Ericsson AB (ERIC) lifted its sales and margin targets Thursday, reporting continued strong momentum in its business as operators in North America and North East Asia forge ahead with their fifth-generation network spending.

The telecommunications equipment company reported a quarterly net loss attributable to shareholders of 6.23 billion Swedish kronor ($635 million) compared with a profit of SEK2.75 billion in the year-earlier period, after booking a previously announced SEK11.5 billion provision to settle a U.S. corruption probe.

Sales rose 6.1% to SEK57.1 billion, driven by its key networks unit.

Analysts polled by FactSet expected a net loss of SEK7.7 billion on sales of SEK56.45 billion.

Ericsson lifted its 2020 sales target to SEK230 billion-SEK240 billion from SEK210 billion-SEK220 billion.

On the margin side, the company backed its operating margin target for 2020, excluding restructuring charges, at over 10% of sales, but lifted 2022 target to 12%-14% from over 12%, excluding restructuring charges.

“5G is taking off faster than earlier anticipated and we see initial 5G buildout as a capacity enhancer in metropolitan areas,” said Chief Executive Borje Ekholm.

“The largest market for 5G infrastructure will be China where deployments are expected to start near term,” he added, noting that it is too early to assess possible volumes and price levels but that he expects challenging margins initially with positive margins over the lifespan of a contract.

Mr. Ekholm has previously cautioned that the company was taking an increasing number of strategic contracts–which hurt profits in the short term but should boost margins over the long term–to boost market share.

In a statement Thursday, he said that while the company is disciplined in the deals it takes and opportunities it targets, the low initial margins are expected to have an increased negative impact on gross margin short term.

In the third quarter the operating margin fell to negative 7.3% from a positive margin of 6.0%.

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