Ericsson sales were SEK 54.8 billion, up by 7% driven by growth in Networks in North America and North East Asia.
Borje Ekholm, President and CEO, Ericsson said, “Organic sales growth was 7% in the quarter, mainly driven by sales in North America and North East Asia. We see strong momentum in our 5G business with both new contracts and new commercial launches as well as live networks. To date, we have provided solutions for almost two-thirds of all commercially launched 5G networks.”
“5G momentum is increasing. Initially, 5G will be a capacity enhancer in metropolitan areas. However, over time, new exciting innovations for 5G will come with IoT use cases, leveraging the speed, latency and security 5G can provide. This provides opportunities for our customers to capture new revenues as they provide additional benefits to consumers and businesses,” added Ekholm.
In the quarter, gross margin was unchanged YoY at 36.7%, with improvements in Networks being offset by lower margins in Digital Services and Managed Services.
Networks had another solid quarter with an organic sales growth of 11% YoY, driven by 4G and 5G investments in North America and North East Asia as well as increased volumes related to strategic contracts. While the strategic contracts will be margin accretive in the long term, the impact on near-term profitability is negative.
In Digital Services we continue to execute on the plan to reach low single-digit margins for 2020. The improvements are not linear and will vary between quarters. Organic sales in Digital Services were down by -3% YoY as a result of rapid decline in legacy products. Our 5G and Cloud native portfolio is gaining customer traction and we are increasing related R&D investments to ensure portfolio readiness.
The reshaped BSS strategy is gaining momentum and contracts were signed with several new customers in the quarter. The share of recurrent business is increasing, we are tracking towards having 75% of the 45 critical and non-strategic contracts addressed by year-end and we have cost efficiency programs in place throughout Digital Services.
In Managed Services the strategy is to enhance the customer offering by relying more on automation, machine learning and AI, which will longer-term change and improve the margin profile of the business.