Telefonaktiebolaget LM Ericsson Inc. (ERIC) stock plunged during pre-market trading. Here’s to know why?

Telefonaktiebolaget LM Ericsson Inc. (NASDAQ: ERIC) stock gained by 0.15% at last close whereas the ERIC stock-price declines by 7.85% in the pre-market trading session. Telefonaktiebolaget LM Ericsson is a Stockholm-based global networking and telecommunications corporation. For telecoms service providers and companies, ERIC supplies infrastructure, software, and services in information and communications technology, including 3G, 4G, and 5G equipment, as well as Internet Protocol (IP) and optical transport systems.

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Financial Highlights

Ericsson has released its second-quarter 2021 financial results. The highlights have been jotted down:

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  • Despite a sales drop of SEK -2.5 billion year-over-year in Mainland China and an IPR revenue fall of SEK -0.5 billion YoY, group organic sales increased by 8% YoY. Sales were reported to be SEK 54.9 (55.6) b.
  • Excluding restructuring costs, gross margin increased to 43.4 percent (38.2 percent), owing mostly to operational leverage in Networks. Inventory write-downs and early 5G installations in Mainland China hurt Q2 2020 results. The gross margin was reported to be 43.4 percent (37.6 percent).
  • Networks drove an increase in EBIT excluding restructuring costs to SEK 5.8 billion (10.6 percent) YoY from SEK 4.5 billion (8.2 percent). SEK 5.8 (3.9) b was reported as EBIT.
  • Organic sales in Networks increased by 11% year over year, owing to increased market share. In Mainland China, sales were SEK -2.0 billion down year on year. EBIT margin was reported to be 21.7 percent (13.2 percent).
  • Despite a sales drop of SEK -0.5 billion in Mainland China, organic sales in Digital Services were constant year on year. The reported EBIT (loss) was SEK -1.6 (-0.7) billion, affected by a SEK -0.3 billion write-down for pre-commercial product expenditures in China.
  • The RAN market prognosis for 2021 has been revised to a 10% YoY growth rate, up from a previous forecast of 3%.

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Börje Ekholm, President and CEO of Ericsson stated,

The latest IPR deal with Samsung underlines the tremendous value of their patent portfolio, and they are well positioned to complete pending and upcoming patent license upgrades with this deal in place. In July, another agreement was struck. Renewal discussions are now at a high level of activity. Revenues will include retroactive payments for the unlicensed period previous to signing when new contracts are completed.

While many markets are returning to normal following the COVID-19 epidemic, they continue to witness an increase in the number of cases in Southeast Asia, which might impede the recovery of affected nations.

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