Ericsson reported disappointing fourth quarter and full-year 2022 results hampered by slowing 5G spend that the vendor expects will continue to lag heading into the new year and create operating uncertainty.

Ericsson President and CEO Börje Ekholm explained to investors that operational headwinds increased in Q4, with “operators slowing the pace on network investments and that includes front-runner customers in many markets.”

Ekholm said those issues impacted sales in North America, which he expects to continue into 2023. That issue will see operators “continue to sweat the assets in response to the macroeconomic headwinds,” which he added will coincide with operators adjusting their inventory levels as supply chain challenges ease.

Sales issues in North America were offset by stronger equipment sales in Southeast Asia, Oceania, and India. That last highlighted by Ericsson’s substantial 5G radio access network (RAN) deals with Indian operators and subsequent expansion of production capacity in that country.

The vendor has also implemented cost-saving plans that Ekholm said will start showing results during the second quarter of this year, with their full impact hitting by year-end. Those moves included corporate restructuring for some of the vendor’s business units.

Overall, Ericsson’s total sales increased by 21% during the quarter compared to the last three months of 2021. However, increased costs slashed net income by 39%.

“We remain positive on the long-term outlook for our business,” the vendor noted in its earnings release. “However, the near-term outlook … remains uncertain.”

5G Core Cloud Growth in North America

Ericsson’s management did reiterate a timeline on turning around its lagging cloud software and services business. Ekholm said the vendor expects its cloud operations to hit breakeven for operating profits for its full 2023 fiscal year, “with gradual improvements in profitability thereafter towards much more attractive levels.”

That business did see sales growth in North America during Q4, which the vendor noted was due to 5G core contracts, but was offset by a drop in business across other regions. CFO Carl Mellander said the vendor took a $78 million charge in Q4 tied to its cloud and software business.

“The performance in this segment has clearly not been satisfactory historically,” Ekholm said, echoing past comments from Mellander.

Ericsson during its Capital Markets Day last month announced a new strategy for its cloud business that will see the vendor limit “subscale software development, accelerating automation to lower deployment and maintenance efforts, and changing focus from market share gains to profitable business.”

“We're confident that the business is on path to reaching operating profit breakeven for the full year of 2023,” Ekholm said.

Ericsson's 2022 Ethics Investigation Update

Ericsson also set aside $225 million during Q4 tied to the potential resolution of an ongoing ethics investigation being conducted by the U.S. Securities and Exchange Commission (SEC), which is tied to a broader investigation that also include the Department of Justice (DoJ).

The SEC investigation was launched in June 2022, and involves Ericsson’s handling and reporting of the DoJ investigation into bribery and corruption allegations against the vendor for its work in Iraq.

“While we're now in a position to make a sufficiently reliable estimate of the financial penalty, we have not yet reached a resolution with the DoJ and discussions are ongoing,” Ekholm said of a potential settlement.

The broader Iraq investigation remains ongoing.