Fri, Oct 18, 2019 - Page 10 News List

Ericsson upbeat on 5G promise

TURNAROUND:After a better-than-expected third quarter, the Swedish equipment vendor raised its sales target for next year as telecom networks increase 5G spending

Bloomberg

The Ericsson logo is seen at the Swedish company’s headquarters in Stockholm on June 14 last year.

Photo: Reuters

Ericsson AB raised its sales target for next year on signs that spending on new 5G networks is speeding up, as it reported third-quarter results that beat analysts’ expectations.

The Swedish equipment vendor is now targeting sales of 230 billion Swedish kronor to 240 billion Swedish kronor (US$23.5 billion to US$24.5 billion) next year, buoyed by currency effects and a stronger market for 5G, compared with a previous aim of 210 billion kronor to 220 billion kronor.

Chief executive officer Borje Ekholm is focused on taking a bigger piece of the market for telecom networks as part of his turnaround of the Stockholm-based company, and winning contracts from telecoms upgrading to 5G mobile services will be critical.

Ericsson now expects the radio access network market to grow by 5 percent this year, citing an estimate by consultant Dell’Oro, and highlighted China as the largest market for 5G infrastructure.

“Our strategy is to strengthen our market position,” Ekholm said in a telephone interview.

“5G is happening faster than we had expected,” he said.

The more robust sales target and better-than-expected third-quarter results are a dose of good news for shareholders after Ericsson took a US$1 billion provision this month in anticipation of a fine by US authorities investigating business ethics breaches. ‘

The provision erased Ericsson’s quarterly profit and the firm posted a 6.9 billion kronor net loss.

Third-quarter sales were 57.1 billion kronor, beating the average analyst estimate of 56.5 billion kronor, and Ericsson’s adjusted gross margin rose to 37.8 percent, compared with the 36.6 percent expected by analysts.

The successful turnaround of the main networks business that Ekholm has overseen since becoming CEO in 2017 has given Ericsson the confidence to be more aggressive, sacrificing profitability on some contracts to expand market share.

“Some of these contracts have a dilutive effect on the margin,” Ekholm said. “We will continue to take contracts like that and that has had a limited effect in the quarter. We are talking about an 80 basis point effect on the networks margin, so we are managing that.”

As US authorities seek to limit Huawei Technologies Co’s (華為) influence over global 5G infrastructure, the Swedish firm has picked up contracts from operators that had previously been supplied by the Chinese company, including Telia Co in Norway and TDC A/S in Denmark.

Ericsson would continue to invest heavily in research and development to expand its footprint in 5G, Ekholm said.

He added that costs are usually higher in the early phase of a rollout, but he was confident Ericsson could manage them.

In China, Ericsson wants to have a stronger position with 5G than where it is at with 4G, which was less than 10 percent of the market, he said.

“We are trying to invest to position ourselves to strengthen our footprint in China,” he said.

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