HomeNewsEricsson reports y-o-y profits up by 41%, but not everyone is happy

    Ericsson reports y-o-y profits up by 41%, but not everyone is happy


    Activist investor Cevian Capital bemoans low share price, Vonage acqusition and a lack of clarity about the enterprise market

    Ericsson’s activity elsewhere offset its ongoing decline in China as it reported better margins in Q4 2021 resulting in an 8% rise in its share price.

    Organic sales grew by only 2% year-on-year due largely to the 3% decline it suffered in China, but gross margins were lifted by 3% resulting in a year-on-year 41% increase in profits.

    Not everyone was happy with the results which are being widely described as “stellar”.

    Cevian comments

    Christer Gardell, Managing Partner at activist investor Cevian Capital, which cut its stake in Ericsson last year, is unhappy that the “very strong” earnings do little to address the firm’s undervalued  price.

    According to a report by Bloomberg, Gardell recommended that Ericsson stems losses in its Digital Services unit, and considers divesting or spinning out its declining Managed Services business.

    It should also clearly articulate the potential in its Enterprise business, including how and when it plans to get there.

    Börje Ekholm, CEO of Ericsson, said in a statement accompanying the report of its financial results, “We will continue our efforts to expand our presence in the enterprise market.

    “Over time, we expect the enterprise segment to provide higher growth and profitability than our mobile infrastructure business,” which is probably not what Gardell had in mind.

    Vonage vantage?

    Gardell also said that Ericsson’s board and management should “justify” to the market why it was better to use almost 60 billion kronor ($6.4 billion) for its biggest ever acquisition, Vonage, in 2021 at “more than 50x EV/Ebit instead of buying back Ericsson shares at 8x EV/Ebit”.

    As was apparent at the time of the acquisition, a number of parties queried Ekholm’s logic (Dean Bubley didn’t mince his words), restated at the results reporting, that, “Our commitment to pursue value from growth in wireless enterprise took a significant step forward with the announcement of our ambition to acquire Vonage, which will give us the foundation to develop a Global Network Platform to drive innovation on top of the 5G network.”

    Time will tell, meanwhile more info about Ericsson’s results here.

    Upping the ante with Apple

    Another potential source of concern is Ericsson’s patent war with Apple is escalating too. The two disagree about royalty payments for patents and the Swedish firm has now ramped up its infringement lawsuit, striving to put an embargo on Apple’s iPhone being shipped to countries including Brazil, the Netherlands, Germany, Belgium, among other, with the UK and other European countries looking likely to follow.