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Börje Ekholm is evidently frustrated by the lack of interest in his company’s 5G products, developed at great expense. “5G has not been built out,” grumbled Ericsson’s CEO on his routine quarterly call with analysts today. “If you take the North American market, 5G standalone is not rolled out. London in Europe has very limited buildout. Most of the time when you get the 5G icon on your phone, you are basically on dynamic spectrum sharing using 4G spectrum.”
It explains why the last two years have been among the worst the big makers of mobile network equipment have experienced this century. But after sales apparently fell at double-digit rates in both 2023 and 2024, there are thankfully signs of a long hoped-for recovery at the start of 2025. Sales at Ericsson, the first of the giant 5G vendors to publish full-year results for 2024, returned to growth in the final three months of last year for the first time in eight quarters. Talks and interactions with customers have been “positive,” said Ekholm.
But it would obviously be wrong to think the radio access network (RAN) segment is in rude health. Its anticipated recovery this year is that of a hospital patient gingerly taking those first steps out of bed, with Dell’Oro, a market research company, guiding for worldwide sales growth in 2024 of 2% at best, according to Ericsson’s latest report, and predicting revenue levels will remain largely flat over the next five years.
For Ericsson, recent growth owes just about everything to the US. Total fourth-quarter revenues at the Swedish company rose 1% year-over-year (2% organically), to 72.9 billion Swedish kronor (US$6.7 billion). North American sales accounted for 30% of that amount and grew an astonishing 53% year-over-year. While there was a modest 1% improvement for Europe and Latin America, sales outside North America fell 11.5%.
What’s more, the performance in North America was driven partly by a massive $14 billion contract signed with AT&T in December 2023. It came at the expense of Finnish rival Nokia, which Ericsson is to replace across one third of AT&T’s footprint, having already served the rest. Ekholm, nevertheless, was keen to flag “strong year-end hardware demand and significant software traction with other large customers” when highlighting a 70% increase in network sales to North American telcos.
Planning for Trump
Efficiency measures remain a priority, especially amid concern about the impact any tariffs introduced by Donald Trump, America’s new president, could have on a company that is not headquartered in the US and that has global operations. “I think the whole world is moving from a cost-optimized supply chain to resilience,” said Ekholm. “You need to factor in resilience in the supply chain and that is why we built a US factory, and we are investing to increase capacity in the US as well.”
While the sales outlook remains weak, Ericsson’s margins have continued to benefit from various factors. Work in the last year has increasingly shifted from India, with its wafer-thin margins, to the US, where telcos are thought by many experts to pay higher prices for the same gear. North American interest in Ericsson’s newish 5G Advanced portfolio, whose software features can largely run on hardware that has already been deployed, also helped to boost profitability. Ericsson’s gross margin was up 5.1 percentage points, to 44.9%, compared with the year-earlier period.
Ericsson has also cut heavily into costs, eliminating 9,400 “internal and external” jobs in 2024, said Ekholm earlier today. The net reduction leaves the company with 94,236 employees, down from 99,952 a year earlier and more than 111,000 back in 2017, when Ekholm first took charge. Over this period, it has retreated from various activities in TV and cloud hardware to concentrate on 5G, although its $6.2 billion takeover of Vonage in 2022 brought additional staff into the business.
After cuts, Ericsson booked a margin for earnings (before interest, tax and amortization) of 10.9%, compared with 8.1% a year earlier, and net income of SEK4.9 billion ($450 million), a 43% year-over-year increase. Yet the company’s share price was down 9% in Stockholm earlier today. Investors appear to have expected better results, and the gloomy outlook will not have buoyed spirits.
Not so API days
So far, Ericsson has little to show for that big Vonage acquisition, which it justified as a springboard into the nascent market for network APIs (application programming interfaces). The big industry idea is to expose supposedly important features of the 5G network through those APIs to software developers and cultivate a market for 5G-specific applications. Payments for APIs and additional network usage would ideally boost telco revenues, giving operators the financial means and incentive to buy new equipment. Aduna, a joint network APIs venture Ericsson has formed with some of the world’s biggest telcos, incorporates a part of the Vonage business aimed at making all this happen.
But if the industry is floundering, many doubt Aduna and network APIs more generally will bring a major revival. In the meantime, the rest of the Vonage business – dubbed Global Communications Platform by Ericsson – suffered a 17% year-over-year drop in sales, to SEK3.4 billion ($310 million), for the fourth quarter. Revenues at the enterprise unit to which it belongs were down 9%, to SEK6.1 billion ($560 million), and its operating loss widened 63%, to SEK1.3 billion ($120 million).
There was also disappointment at the long-suffering cloud software and services unit. Although sales were roughly unchanged at about SEK19.5 billion ($1.8 billion), operating profits sank 40%, to SEK1.1 billion ($100 million), a drop Ericsson blamed on bonus payments. That said, the unit did at least record an operating profit for the quarter after registering a SEK400 million ($36.6 million) loss for the full year.
Today’s update brought acknowledgement from Ekholm that data traffic growth on mobile has slowed down, hurting demand for Ericsson’s products. Its response has involved putting heavy emphasis on the concept of programmability, whereby 5G networks could be dynamically adapted to support different services and scenarios, including artificial intelligence (AI) applications.
“The network needs to be prepared for the AI traffic,” said Ekholm. “It’s going to require more uplink. It’s going to require a different performance of the network. That, I think, may be more important in the next few years as a traffic definition. So yes, overall traffic is probably going to continue to taper down. But I think the demand coming from the new applications on top will materially impact the way you need to invest in the network.” An AI spur to 5G would be just what the doctor ordered.