Ericsson’s 5G march was halted by China, as strong sales across most of its markets in Q2 was offset by a drop in the country, contributing to an overall group revenue decline for the first time in three years.
Net sales amounted to SEK54.9 billion ($6.3 billion), a 1 per cent decline from SEK55.6 billion in the same period of 2020, although net income rose 51 per cent to SEK3.9 billion.
Ericsson pointed to organic sales growth of 8 per cent, but a dip of SEK2.5 billion from mainland China stood out, with revenue also negatively impacted by new IPR licensing agreements due to foreign exchange weakness and lower volumes with one licensee. It was however boosted by a recent global patent licence agreement with Samsung.
Revenue for Networks was flat at SEK39.9 billion, although grew organically 11 per cent despite “lower volumes of delayed 5G deployment in mainland China”.
Speaking to Mobile World Live following the earnings announcements, Fredrik Jejdling, EVP and head of business area Networks (pictured) reiterated the company’s belief Sweden’s decision to ban [1] products made by Huawei and ZTE from 5G networks “may adversely impact our market share position”.
“It is prudent to assume we’re going to get a lower market share in mainland China,” he added.
Jejdling noted the final results of new 5G tenders in the country had not yet been confirmed, so the situation could yet change.
“We have a competitive portfolio and that portfolio allows us to win in other markets. Exactly, how this race in China is going to pan out and the timing in all of this is hypothetical at this stage,” he said.
5G momentum
Despite its China woes, Ericsson pointed to a high level of activity in most of its other markets, with North East Asia outside mainland China bringing in sales of SEK7.1 billion due to 5G momentum, in addition to SEK14 billion in Europe and Latin America and SEK18 billion in North America.
Ericsson noted it “continued on the successful path of 5G wins in North America, pointing to a five-year deal with Verizon [2] amounting to $8.3 billion, “the single largest deal in the history of Ericsson”.
Networks aside, the company recorded an 8 per cent dip in its Digital Services division, also hit by declines in China, including a SEK300 million write-down for pre-commercial product investments in the market.
It experienced the same 8 per cent decline in Managed Services, due to lower variable sales in North America, although Emerging Business and Other grew 29 per cent.
[1] https://www.mobileworldlive.com/featured-content/home-banner/ericsson-frets-over-china-market-share
[2] https://www.mobileworldlive.com/featured-content/top-three/verizon-awards-8b-5g-deal-to-ericsson
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