Solid cash position “sends an important signal to our customers“
Mr. Sandström, Ericsson has been struggling with declining revenues for some time, with a 6% drop in 2024.
It's true, we've had several quarters with falling revenues, but in the last quarter of 2024, we saw a boost in the US, and Europe has picked up a bit as well. Therefore, we expect overall stabilisation.
So no growth this year?
Right now, we are only looking from quarter to quarter. There is a lot of uncertainty in the market. For the coming quarter, we are expecting a normal seasonal development, similar to last year.
Last year, there was a particularly noticeable drop in revenue in the area where you made your largest acquisition in the company's history, Vonage. What caused the 17% decline, and what’s coming next?
The revenue drop resulted from having to scale back operations due to market developments and demand. The environment remains challenging, but we expect stabilisation here as well. It's true that the division is still making losses, and we need to address costs, but we are pushing the business forward. Our joint venture, Aduna, where we are developing APIs (Application Programming Interfaces), has already received support from several major telecoms providers like Vodafone, Deutsche Telekom, and AT&T. Just recently, Orange announced its participation in the initiative.
What is the specific goal of this joint venture?
The core goal is to facilitate the monetisation of 5G technology for telecom network operators.
To advance the development, do you still need external input through acquisitions?
We essentially have everything we need, but some smaller acquisitions could be considered to improve a product or strengthen us regionally. Nothing on the scale of Vonage.
You are sitting on a well-filled cash reserve because cash flow increased significantly last year. If you're not making acquisitions, can shareholders expect a special dividend, and higher dividends going forward?
In 2023, we had weak cash flow, but it improved significantly last year, reaching 40 billion SEK, partly because we could significantly reduce working capital. For us, it’s very important to maintain a very solid cash position. On one hand, it sends an important signal to our customers, who invest large sums in their telecommunications equipment. They need to know that Ericsson will remain financially stable in the long run.
Your proposed dividend of 2.85 SEK per share represents an increase of 5.5%. Is that the pace you want to maintain?
We expect a slightly rising dividend. This is also due to the fact that we need to invest a lot in research and development. In our core business with network technology and for cloud and software solutions, that’s 45 billion SEK annually.
The core business with network technology is often very cyclical. Competitors are trying to diversify. Is Ericsson doing the same?
The 5G cycle is not over yet. There is still considerable investment needed from network operators globally. Regarding diversification, we are focusing on business areas that are close to our core competencies. There is demand for telecommunications technology beyond telecom operators, both from the public sector and private companies. For instance, we see a market for mission-critical communication structures in defence, which we are addressing. Private enterprise networks are also a market.
Can you already say how much this area makes up of your total revenue?
We are not commenting on that, but it is a market.
Another market is satellite communications, where Vodafone just signed an agreement with AST Spacemobile for mobile service via satellite. Is that a threat to existing business lines?
No, we are working with network operators on initiatives to improve coverage in underserved areas. Satellite technology is an option for this, but it is not suitable for urban areas with high population density and corresponding communication needs.
Restructuring costs are expected to stay at an elevated level this year. What does that mean exactly?
We have had weak revenue development recently. While we expect stabilisation, we remain cautious. On the other hand, we have to cope with inflation and rising costs. That’s why we need to reduce costs this year. We are targeting specific areas, and if job cuts occur, we will communicate that.
