Telecom equipment maker Ericsson remained successful to post quarterly earnings in line with the forecasts for the recent quarter but has said that it is expecting profit margins to be hit by costs to incur on winning new contracts in the second half of the year.
The results reported last week ended a series of beaten earning in the previous five quarters as winning strategic contracts to build up market share took the toll in shape of declining profits.
After suffering through an industry-wide fall in the middle of the decade with operators reducing their spending, Ericsson remained showing stability in improving profits in 2018 and 2019 which made the analysts expectation of the company to be upgrading its targets for 2020.
But the company said it was on track to achieve its financial goals set for 2020 and 2022 that will be coming on the heels of stronger 5G equipment demand.
The company, which also competes with Finland’s Nokia as its main rival, has showed commitment of delivering an operating margin of more than 10% in 2020, excluding the costs it has to bear on restructuring.
In the reported quarter, due to strategic contracts, lower revenues from intellectual property rights and litigation settlement costs, Ericsson’s quarterly gross margin in Networks segment dropped to 41.4% which was 43.2% in the previous quarter.
The company said that the strategic contracts will pay off in the long run but for now these are hurting the profits.
Ericsson’s overall gross margin increased to 36.6% from 34.8% year on year, but excluding restructuring costs that fell to 36.7% from margin of 38.5% in the same quarter a year ago.
The equipment maker succeeded to make quarterly operating profits of 3.7 billion crowns in comparison to 0.2 billion operating profit of a year ago and also remained in line with the analyst poll which forecasted a mean profit of 3.7 billion.
Ericsson generated revenue of 54.8 billion crowns against 49.8 billion of a year ago, which also beat forecasts of 53.2 billion.