Tech stock under pressure: Telefonaktiebolaget LM Ericsson (NASDAQ: ERIC)

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Telefonaktiebolaget LM Ericsson (NASDAQ: ERIC) stock fell over 0.7% on 23rd April, 2020 (as of 11:02 am GMT-4; Source: Google finance) as the company has reported lower than expected results for the first quarter of FY 20. ERIC in the first quarter of FY 20 has reported the adjusted earnings per share of 7 cents, missing the analysts’ estimates for the adjusted earnings per share of 8 cents. The company had reported 4.74% fall in the adjusted revenue to $5,124,000,000 in the first quarter of FY 20, missing the analysts’ estimates for revenue of $5,380,000,000. The sales in North America, Saudi Arabia and Japan had grown while sales in Latin America, China and India had fallen.  Networks sales adjusted for comparable units and currency was flat YoY. The growth in North America, Saudi Arabia and Japan was offset by a decline mainly in Latin America, India and North East Asia excluding Japan. Digital Services sales adjusted for comparable units and currency declined by -9% YoY on the back of reduced sales of services and legacy hardware. Services sales had fallen after fewer project completions in the quarter, and a somewhat negative impact on deliveries from the Covid-19 pandemic. Managed Services sales adjusted for comparable units and currency had fallen by -5% YoY due to contract exits. The sales adjusted for comparable units and currency in Emerging Business and Other fell by -8% driven by reduced legacy sales in media. Sales in Emerging Business had increased. IPR licensing revenues were flat at SEK 2.5 (2.5) b. YoY and QoQ.

The company’s Q1 gross margin had improved to 40.4% (38.5%) YoY, on the back of favorable business mix, including an increased software share, in segment Networks. Digital Services gross margin expanded due to a higher share of software and stronger hardware margins. Managed Services gross margin expanded mainly as an effect of efficiency gains and timing of costs. The company expects the industry to show resilience throughout the pandemic, and is well positioned currently with a competitive 5G product offering and cost structure. There is near-term uncertainty around sales volumes driven by Covid-19 and the macroeconomic situation, but with current visibility the company will not change the financial targets for 2020 and 2022.

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