Telefonaktiebolaget LM Ericsson(ERIC) stock prices were down to USD$13.54 as of market close on April 20th, 2021, having declined by 1.46% over the course of the trading day. Subsequent pre-market fluctuations saw the stock price recoup by 4.43% to hit USD$14.14.
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ERIC Exceeds Expectations
April 21st, 2021 sat the Swedish giant exceeds market estimates with its Q1 2021 core earnings report being announced. This can largely be attributed to the offsetting of a loss in royalty income, due to an ongoing patent battle with Samsung Electronics, by strong sales numbers of 5G equipment.
Global Race Towards 5G Tech
With the global pandemic in play, 5G implementation has been sped up as governments the world over are prioritizing digital growth. This provides a significant opportunity for telecommunication equipment manufacturers such as Ericsson and the Finnish Nokia.
Promising Financials
ERIC reported quarterly adjusted operating earnings that peaked at USD$627.9 million, beating the average forecasted earnings of USD$590 million. The numbers reported for the are up from the same quarter of the previous year, which indicated adjusted operating earnings of USD$540 million.
Capitalizing on Huawei Ban
With a ban on Chinese Huawei’s technology spanning several countries, Ericsson filled that void in many markets and enjoyed maintaining of its previously reported strong revenue totals. While estimates leaned towards USD$6.32 billion, currency headwinds are also responsible for the USD$5.89 reported, which are unchanged from the previous year.
Legal Tussle with Samsung
While revenue took a hit in the ongoing battle with Samsung in regard to patent license royalties, ERIC enjoyed a 15% increase in sales at their networks unit. Adjusted gross margins increased from 40.4% to 42.9%.
ERIC’s Approach to Samsung Dispute
ERIC CFO has emphasized the company’s commitment to advancing the legal and negotiation track in regard to the royalties dispute but is hesitant to give a firm timeline. This is prudent, given how technological patent disputes have the potential to carry on for years, much like the 2014 resolution of the two giants’ last dispute which took two years to settle. However, depending on the outcome of the resolution, royalty payments can be recoup.
Future Outlook for ERIC
ERIC expects 2021 to see promising developments in the 5G equipment market, which the company can capitalize on given how they have overcome the global semiconductor shortage that is affecting a plethora of industries across the globe. With a commitment to proactive and continuous efforts to maintain their supply chain, ERIC expects similar stability moving forward. Investors eagerly await the outcome of their royalties battle with Samsung, in the hopes of a favorable outcome resulting in significant increases in shareholder value.
