July 17, 2020 / 5:42 AM / in 21 days

UPDATE 1-Ericsson Q2 core profit beats, margins improve on telecom equipment sales

(Adds details on margins, CEO quote, background)

STOCKHOLM, July 17 (Reuters) - Sweden’s Ericsson reported quarterly core earnings ahead of market estimates on Friday, buoyed by higher margins on the sale of telecom equipment, and said it was keeping its financial targets for 2020 and 2022.

Despite the economic uncertainty over the coronavirus outbreak, many telecom companies globally have been moving ahead with plans to upgrade to 5G networks, pushing up Ericsson’s commercial contract wins to 99.

Ericsson and Finland’s Nokia were also expected to be the beneficiaries of Britain’s decision this week to ban Chinese telecoms giant Huawei from next-generation 5G networks.

“Some customers are accelerating their investments while others are temporarily cautious,” Chief Executive Officer Börje Ekholm said in a statement. “With current visibility, we maintain the group targets for 2020 and 2022.”

But some of those contract wins came with a cost.

Ericsson, which won contracts from China’s three largest telecom operators - China Mobile, China Telecom and China Unicom, had to take hit on gross margins as it wrotedown about 1 billion crowns ($109 million) in product inventory.

Including the 1.6 percentage points hit, gross margin rose to 38.2% in quarter from 36.7% in the year-ago period.

The company’s second-quarter adjusted quarterly operating earnings rose to 4.5 billion Swedish crowns ($495.85 million) from 3.9 billion a year ago, beating the mean forecast of 3.36 billion crowns, according to a Refinitiv poll of analysts.

Total revenue rose 1% to 55.6 billion crowns.

$1=9.0753 Swedish crowns Reporting by Helena Soderpalm and Supantha Mukherjee; editing by Niklas Pollard and Rashmi Aich

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