Ericsson Reports Estimate Beating Forecast With Global 5G Demand Offsetting China Issues

The demand for its telecoms equipment for 5G networks from all over the world offset its more market share losses in mainland China during the latest quarter which helped Ericsson to make quarterly core earnings forecasts that beat estimates, helping its shares to surge by 8 per cent.  

Since the banning of Chinese tech company Huawei from its 5G rollout by Sweden, the Swedish company has been steadily losing its business in China. Now the business from mainland China accounts for just a handful of its revenues from its entire business – in the low single-digit proportion. Ericsson said that the share of revenues from its business in China was about 11 per cent prior to the Swedish ban on Huawei.

But robust demand from other parts of the world more than offset the Chinese drop in business.

“We have seen North America continue to grow very strongly and we grew there by 16% in the quarter in constant currency,” the company’s Chief Financial Officer Carl Mellander said.

Ericson’s strong rival in the market – Nokia which itself is staging a turnaround, has been steadily increasing competition in a number of markets. In comparison, the growth of Ericsson was reported from Europe and Latin America during the company’s fiscal fourth quarter.

China was among the very first countries to deploy 5G networks, which is touted to provide higher internet speeds and the advancement of technologies such as remote surgery. However other countries are catching up on China in the 5G segment. So far, Ericsson has signed 170 5G contracts.

“We think we are still relatively early in the 5G rollout if you look on the globe, so we will continue to see good demand for 5G going forward,” CEO Börje Ekholm told a conference call.

According to Refinitiv data, the company’s quarterly adjusted operating earnings increased to 11.9 billion Swedish crowns ($1.28 billion) from 11 billion a year ago, topping analysts’ average projection of 10.30 billion.

Operating earnings increased to 12.3 billion crowns after restructuring expenses were removed.

While Ericsson’s total quarterly revenue increased by 2% to 71.3 billion crowns, topping analysts’ expectations of 68.33 billion crowns, mainland China sales fell by 1.8 billion crowns.

Mellander predicts a revenue decline in mainland China for at least another quarter.

Ericsson forecasts first-quarter patent revenue to be 1-1.5 billion crowns, down from 2.4 billion crowns in the fourth quarter, due to its legal dispute with Apple over royalty payments.

The firm, which just recorded its biggest quarterly cash flow ever, has been expanding its 5G portfolio through acquisitions, spending more than $7 billion on two firms.

“M&A is part of our policy arsenal for value creation… we can expect to see some more M&A activity,” Mellander said.

(Adapted from Latestly.com)

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