In an impressive turnaround, Ericsson's stock surged by 7% on Tuesday as the Swedish telecommunications giant reported a return to profitability in the third quarter, despite facing a decline in sales due to reduced customer investments affecting critical markets, including North East Asia, South East Asia, Oceania, and India.
The company recorded an attributable net income of 3.81 billion kronor in the past quarter, marking a stark recovery from a substantial loss of 30.67 billion kronor during the same period last year. This profit increase was largely attributed to improved margins in the Networks segment, driven by a favorable market mix, rigorous cost-cutting measures, and a highly competitive product portfolio.
However, net sales decreased to 61.79 billion kronor from 64.47 billion kronor, primarily influenced by a staggering 43% decline in the South East Asia, Oceania, and India markets as investment levels in India softened following a peak earlier in 2023. Furthermore, the broader slowdown in customer capital expenditure and ongoing macroeconomic challenges imposed significant pressure on the North East Asia as well as the Middle East and Africa regions, which experienced sales declines of 29% and 22%, respectively.
Despite these challenges, Ericsson saw substantial benefits from securing contracts and selective network investments from large customers across North America, where net sales rose by 51% year-on-year, reaching 20.4 billion kronor. Looking to the future, the company anticipates 'continued good growth' in North America, which is expected to facilitate stabilization of sales year-over-year in the Networks segment for the fourth quarter.
Yet, caution is advised as the Enterprise segment may encounter 'near-term sales pressure,' as noted by President and CEO Börje Ekholm. Ekholm shared optimism, stating, 'We see signs that the overall market is stabilizing with North America, as an early adopter market, returning to growth. While the market development is ultimately in the hands of our customers, we are dedicated to achieving operational excellence regardless of market conditions.
Our Q3 results showcase our advancements, with impressive gross margin expansion and positive free cash flow, which stem from our commercial discipline and efforts in operational efficiency.'.