Ericsson(ERIC) - 2025 Q1 - Quarterly Report

First Quarter 2025 Report Financial and Strategic Highlights Ericsson demonstrated solid Q1 2025 performance with strong adjusted gross and EBITA margins, driven by operational execution and strategic technology advancements Q1 2025 Financial Highlights (SEK billion) | | Q1 | Q1 | YoY | Q4 | QoQ | | :--- | :--- | :--- | :--- | :--- | :--- | | Net sales | 55.0 | 53.3 | 3% | 72.9 | -25% | | Organic sales growth* | - | - | 0% | - | - | | Gross margin | 48.2% | 42.5% | - | 44.9% | - | | Adjusted gross margin | 48.5% | 42.7% | - | 46.3% | - | | EBIT | 5.9 | 4.1 | 45% | 8.0 | -25% | | EBIT margin | 10.8% | 7.7% | - | 10.9% | - | | Adjusted EBITA | 6.9 | 5.1 | 36% | 10.2 | -32% | | Adjusted EBITA margin | 12.6% | 9.6% | - | 14.1% | - | | Net income | 4.2 | 2.6 | 61% | 4.9 | -14% | | EPS diluted, SEK | 1.24 | 0.77 | 61% | 1.44 | -14% | | Free cash flow before M&A | 2.7 | 3.7 | -26% | 15.8 | -83% | | Net cash, end of period | 38.6 | 10.8 | 258% | 37.8 | 2% | - CEO Börje Ekholm highlighted solid execution, a strong 48.5% adjusted gross margin, and a 12.6% adjusted EBITA margin in Q1[4] - Strategic advancements include extending technology leadership with a portfolio of 130 programmable network radios and announcing the first Asia Pacific programmable network with Telstra[5][9] - The company announced network API fraud detection deployment with all three major US operators[9] Group Financial Performance Group Results The Group reported a 3% year-over-year net sales increase to SEK 55.0 billion in Q1 2025, with significant gross margin expansion and strong EBIT and net income growth Q1 2025 Group Income Statement (SEK billion) | | Q1 2025 | Q1 2024 | YoY change | | :--- | :--- | :--- | :--- | | Net sales | 55.0 | 53.3 | 3% | | Gross income | 26.5 | 22.7 | 17% | | Gross margin | 48.2% | 42.5% | - | | R&D expenses | -12.0 | -11.6 | - | | SG&A expenses | -8.6 | -8.7 | - | | EBIT | 5.9 | 4.1 | 45% | | EBIT margin | 10.8% | 7.7% | - | | Net income | 4.2 | 2.6 | 61% | - Reported sales increased by 3% to SEK 55.0 billion, while organic sales were stable. Networks sales grew 6%, Cloud Software and Services were stable, and Enterprise sales declined 1%[13][14] - Gross margin improved to 48.2% (from 42.5%) primarily due to better margins in Networks from product/market mix and supply chain efficiency, as well as improvements in Enterprise and Cloud Software & Services[16] - Other operating income was SEK 0.0 billion, compared to SEK 2.0 billion in Q1 2024 which included a one-time gain of SEK 1.9 billion[21] - The number of employees decreased to 92,866 from 94,236 at the end of the previous quarter[29] Market Area Performance Market Area Sales Q1 2025 sales varied by region, with strong 20% organic growth in Americas offsetting declines in Europe, Middle East, Africa, and Asia due to moderating investments and headwinds Q1 2025 Sales by Market Area (SEK billion) | | Q1 2025 | Q1 2024 | YoY change | YoY organic growth | | :--- | :--- | :--- | :--- | :--- | | Americas | 20.8 | 16.4 | 26% | 20% | | Europe, Middle East and Africa | 14.5 | 15.3 | -5% | -7% | | South East Asia, Oceania and India | 7.2 | 8.6 | -16% | -17% | | North East Asia | 3.2 | 3.4 | -6% | -8% | | Other | 9.3 | 9.6 | -3% | -6% | | Total | 55.0 | 53.3 | 3% | 0% | - Americas: Sales grew 20%* YoY, driven by strong growth in North America from contract wins and accelerated investments, partly offset by lower sales in Latin America[32][33] - Europe, Middle East and Africa: Sales declined 7%* YoY. Europe was stable, but sales fell in the Middle East due to moderating 5G build-outs and in Africa due to macroeconomic headwinds[35] - South East Asia, Oceania and India: Sales decreased 17%* YoY, primarily due to normalized operator investment levels in India compared to the high levels in Q1 2024[36] Segment Performance In Q1 2025, Networks drove profitability with strong adjusted EBITA growth, Cloud Software and Services returned to profit, and Enterprise narrowed its loss by focusing on profitable areas Mobile Networks – Segment Networks The Networks segment delivered strong Q1 2025 performance with 3% organic sales growth, significant adjusted gross margin expansion to 51.0%, and a 75% surge in adjusted EBITA Q1 2025 Networks Segment Financials (SEK billion) | | Q1 2025 | Q1 2024 | YoY change | | :--- | :--- | :--- | :--- | | Net sales | 35.6 | 33.7 | 6% | | Organic sales growth | - | - | 3% | | Adjusted gross margin | 51.0% | 44.3% | - | | Adjusted EBITA | 7.5 | 4.3 | 75% | | Adjusted EBITA margin | 21.0% | 12.7% | - | - Sales growth was driven by market area Americas, offsetting declines in other regions, particularly India, which had strong sales in Q1 2024[43][44] - The increase in adjusted gross margin to 51.0% was attributed to product and market mix, supply chain efficiency, and prior cost-reduction actions[45] Cloud Software and Services Cloud Software and Services experienced a 3% organic sales decline in Q1 2025 but significantly improved profitability, achieving an adjusted EBITA of SEK 0.2 billion Q1 2025 Cloud Software and Services Segment Financials (SEK billion) | | Q1 2025 | Q1 2024 | YoY change | | :--- | :--- | :--- | :--- | | Net sales | 13.0 | 13.0 | -1% | | Organic sales growth | - | - | -3% | | Adjusted gross margin | 39.9% | 37.4% | - | | Adjusted EBITA (loss) | 0.2 | -0.3 | - | | Adjusted EBITA margin | 1.2% | -2.3% | - | - Sales performance was mixed geographically, with strong project deliveries in India being offset by lower sales in other market areas[48] - Profitability improvement was driven by higher gross income and lower operating expenses resulting from previous cost-reduction actions[50] Enterprise The Enterprise segment saw a 7% organic sales decline in Q1 2025, but improved its adjusted gross margin to 56.2% and narrowed its EBITA loss to SEK -0.5 billion Q1 2025 Enterprise Segment Financials (SEK billion) | | Q1 2025 | Q1 2024 | YoY change | | :--- | :--- | :--- | :--- | | Net sales | 5.9 | 6.0 | -1% | | Organic sales growth | - | - | -7% | | Adjusted gross margin | 56.2% | 48.1% | - | | Adjusted EBITA (loss) | -0.5 | -0.8 | - | | Adjusted EBITA margin | -8.9% | -13.1% | - | - Global Communications Platform (Vonage) sales declined 9% YoY due to a strategic focus on more profitable segments and reduced activities in some countries[53] - Enterprise Wireless Solutions sales grew by 20% YoY, driven by higher subscription and product sales in WWAN and growth in Private 5G[52] Segment Other The 'Other' segment's sales declined to SEK 0.5 billion in Q1 2025 due to divestment, resulting in an adjusted EBITA loss of SEK -0.2 billion compared to a prior-year gain Q1 2025 Other Segment Financials (SEK billion) | | Q1 2025 | Q1 2024 | YoY change | | :--- | :--- | :--- | :--- | | Net sales | 0.5 | 0.6 | -20% | | Adjusted EBITA (loss) | -0.2 | 1.9 | - | | Adjusted EBITA margin | -34.6% | 319.5% | - | - The sales decline reflects the divestment of the IoT business[57] - The significant YoY decrease in EBITA is due to a one-time gain of SEK 1.9 billion in Q1 2024 that was not repeated[59] Cash Flow and Financial Position Cash Flow and Financial Position Ericsson generated SEK 2.7 billion in free cash flow before M&A in Q1 2025, maintaining a strong financial position with net cash increasing to SEK 38.6 billion Q1 2025 Cash Flow and Financial Position (SEK billion) | | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Cash flow from operating activities | 4.4 | 5.1 | | Free cash flow before M&A | 2.7 | 3.7 | | Gross cash (end of period) | 74.2 | 52.0 | | Net cash (end of period) | 38.6 | 10.8 | - Cash flow from operating activities was SEK 4.4 billion. The benefit from higher earnings was offset by an increase in operating net assets[62] - Net cash increased sequentially to SEK 38.6 billion, while gross cash decreased slightly to SEK 74.2 billion due to negative currency effects[64][65] Outlook and Key Data Points Outlook and Key Data Points Ericsson anticipates Q2 2025 uncertainty due to tariffs and macro volatility, with Networks and Cloud Software and Services sales growth aligning with seasonal averages and elevated restructuring charges - The global RAN equipment market is estimated to remain stable in 2025, according to Dell'Oro[67] - Networks Outlook (Q2 2025): - Sales growth expected to be similar to 3-year average seasonality (+8%) - Adjusted gross margin is expected to be in the range of 48% to 50%, which includes an estimated negative impact from tariffs of about 1 percentage point[69][74] - Cloud Software and Services Outlook (Q2 2025): - Sales growth is expected to be broadly similar to the 3-year average seasonality (+15%)[69][75] - Restructuring charges for 2025 are expected to remain at elevated levels[72] Parent Company Parent Company Financials The Parent Company reported Q1 2025 income after financial items of SEK 0.3 billion, with gross cash at SEK 61.2 billion and a SEK 2.85 per share dividend approved for 2024 - Income after financial items for Q1 2025 was SEK 0.3 billion, compared to SEK 2.6 billion in Q1 2024[76] - Gross cash at the end of the quarter amounted to SEK 61.2 billion[76] - A dividend of SEK 2.85 per share for 2024 was approved, with the first installment of SEK 1.43 paid on April 1, 2025, and the second of SEK 1.42 scheduled for October 2, 2025[77] Other Information Legal Proceedings and Other Disclosures Ericsson continues cooperation with the DOJ on Iraq investigation and faces various legal proceedings, including patent licensing disputes and civil lawsuits, while also reaching a partial IPR settlement with Lenovo - The company continues to cooperate with the DOJ's investigation into its past conduct in Iraq and other jurisdictions[79][80] - Ericsson is facing patent licensing investigations by competition authorities in India and China[81][82] - Multiple civil lawsuits have been filed in the US under the Anti-Terrorism Act, and in Sweden by shareholders alleging inadequate disclosure regarding the 2019 Iraq investigation[83][84][85] - On April 3, 2025, Ericsson reached a partial settlement and global patent license agreement with Lenovo, with the outstanding dispute to be submitted to arbitration[87] Risk Factors Risk Factors Ericsson manages various risks, including technology, IPR, compliance, geopolitical uncertainty, M&A, and cybersecurity, as detailed in its 2024 Annual Report and Form 20-F - The company's risk management is integrated into strategy and operational processes, addressing both short-term and long-term risks[91] - Risk categories include technology, IPR, compliance, project execution, operations, geopolitical environment, M&A, and cybersecurity[91] Financial Statements and Other Information This section presents unaudited Q1 2025 financial statements, including income, balance sheet, and cash flow, along with accounting policies, segment notes, and detailed reconciliations of Alternative Performance Measures Financial Statements (Unaudited) This section presents the unaudited Q1 2025 condensed consolidated financial statements, including the income statement, balance sheet, and cash flow statement Condensed Consolidated Income Statement (SEK million) | | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net sales | 55,025 | 53,325 | | Gross income | 26,537 | 22,658 | | EBIT | 5,931 | 4,100 | | Net income | 4,217 | 2,613 | Condensed Consolidated Balance Sheet (SEK million) | | Mar 31, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Total assets | 277,978 | 292,374 | | Total equity | 84,858 | 92,983 | | Total liabilities | 193,120 | 199,391 | Accounting Policies and Explanatory Notes This section details accounting policies consistent with the 2024 annual report, including the new Q1 2025 market area structure and breakdowns of segment sales, financial instruments, and liabilities - Effective Q1 2025, the company implemented a new market area structure, creating 'Market Area Americas' and 'Market Area Europe, Middle East and Africa'. Prior periods have been restated[114] Top 5 Countries by Sales (Q1 2025) | Country | Percentage of Net Sales | | :--- | :--- | | United States | 45% | | India | 7% | | United Kingdom | 4% | | Japan | 3% | | China | 3% | - As of March 31, 2025, the company reported contingent liabilities of SEK 3.1 billion and assets pledged as collateral of SEK 9.5 billion[132] Alternative Performance Measures (APMs) This section defines and reconciles non-IFRS Alternative Performance Measures (APMs) used for performance evaluation, including organic sales growth, adjusted EBITA, and free cash flow, with updated definitions for several APMs in Q1 2025 - APMs are used to enhance evaluation of ongoing operations, aid forecasting, and facilitate comparison between periods[138][139] Reconciliation of EBIT to Adjusted EBITA (Q1 2025, SEK million) | | Q1 2025 | | :--- | :--- | | EBIT (loss) | 5,931 | | Total restructuring charges | 281 | | Adjusted EBIT (loss) | 6,212 | | Amortizations and write-downs of acquired intangibles | 721 | | Adjusted EBITA | 6,933 | Free Cash Flow Before M&A (Q1 2025, SEK million) | | Q1 2025 | | :--- | :--- | | Cash flow from operating activities | 4,358 | | Net capex and other investments (excl. M&A) | -1,061 | | Repayment of lease liabilities | -593 | | Free cash flow before M&A | 2,704 |