By Dominic Chopping
STOCKHOLM — Shares in Ericsson AB (ERIC) slumped as much as 8.2% in early trade Friday after seeing fourth-quarter earnings weighed by higher costs.
The telecommunications equipment company /zigman2/quotes/208932705/composite ERIC +2.19% /zigman2/quotes/207544813/delayed SE:ERIC.B +1.70% /zigman2/quotes/204034770/delayed SE:ERIC.A +2.92% saw costs rise in the quarter as it invested in acquisitions, digitization, security and ethics and compliance. It said that costs will continue to rise this year but won’t jeopardize its 2020 or 2022 financial targets.
Citi analyst Amit Harchandani said he expects consensus 2020 earnings before interest and tax expectations at Ericsson to move lower by 5%-10% on the higher operating expenditure.
“While a weaker quarter was widely anticipated...we would be buyers of any sustained weakness as we see multiple reasons for optimism beyond the headline metrics.”
Despite the higher costs, Ericsson raised its full-year dividend on Friday, saying that operators in Asia and the Middle East continued to spend on their fifth-generation networks, offsetting a slowdown in the North American market.
It said it has now signed 78 commercial 5G agreements with unique operators and 24 live 5G networks on four continents.
The company reported a quarterly net profit attributable to shareholders of 4.43 billion Swedish kronor ($465 million), from a loss of SEK6.55 billion in the year-earlier period.
Sales rose 4% to SEK66.37 billion, driven by its key networks unit. Ericsson raised its dividend to SEK1.50 from SEK1.00.
Analysts polled by FactSet expected a net profit of SEK3.79 billion on sales of SEK65.97 billion.
The company’s key networks unit grew strongly in Japan and Saudi Arabia during the quarter, with all markets except North America also growing.
“Due to the uncertainty related to an announced operator merger, we saw a slowdown in our North American business in 4Q, resulting in North America having the lowest share of total sales for some time,” said Chief Executive Borje Ekholm.
Gross margin at the networks unit rose to 41.1% from 39.9%, but the company again said that initial margins in some of its contracts are challenging.
Ekholm has previously cautioned that the company was taking an increasing number of strategic contracts, which hurt profits in the short term but should boost margins over the long term--to boost market share.
Shares last traded 6.6% lower at SEK79.