Swedish equipment manufacturer Ericsson is dealing with the fallout from an investigation by the Securities and Exchange Commission (SEC) and Department of Justice (DOJ) into allegations that the company was involved in a kickback scheme.
Ericsson CEO Borje Ekholm said during today’s third quarter earnings call that the company has fired 50 people following an internal investigation into the scandal. In a statement, the company said that it believes a resolution of the matter will likely result in fines and other “measures” being instituted by the regulatory agencies.
Ekholm declined to provide further details on the investigation citing that it was an ongoing matter. He emphasized that the company was cooperating with investigators. When pressed, Ekholm said that the scope of the investigation dated back to before 2007, and said that it “covers a wide area.” He was referring to geographic areas as well as business areas.
Svenska Dagbladet, a Swedish newspaper, reported in 2017 that Ericsson was being investigated by the SEC and DOJ about the potential involvement of several top executives in a kickback scheme in Asia, Europe, the Middle East, and Africa (EMEA). At the time, Ericsson told the newspaper that about 20 people had been interviewed about the allegations.
The investigation put a damper on what was an otherwise positive third quarter for the company. Ekholm said that this was its first profitable quarter since 2016. He also touted Ericsson’s involvement in several 5G rollouts in the U.S. where he said the company is seeing strong growth because of 5G. He added that many operators are modernizing their networks with 5G-ready equipment even though it’s technically 4G gear. “It’s increasing difficult to separate 4G from 5G since 4G is fully upgradeable,” Ekholm said.
Interestingly, Ekholm also said that Ericsson expects to see higher costs from 5G field trials because of strong customer interest in the technology. However, he explained that those costs are included in the company’s profitability target of at least 10 percent for 2020, and a longer term target of 12 percent operating margin beyond 2020.
Ericsson reported third quarter net sales of $5.96 billion, which was an increase of 9 percent year-over-year and an 8 percent increase over the second quarter. It also posted an operating profit of $356.5 million compared to a loss of $410 million in the third quarter of 2017.
The company said its gross margin for the quarter was 36.5 percent compared to 26.9 percent for the third quarter of 2017. Ericsson attributed the improvement to cost reductions, a ramp-up of its radio business, and progress in the managed services area.