5G Network Trending, Makes Ericsson's Profits Double By The End Of 2021

JAKARTA – Swedish smartphone maker Ericsson beat its quarterly core revenue forecast on Tuesday, January 25. Ericsson shares rose 8% as global demand for 5G network telecommunications equipment offset their heavy losses in market share in mainland China.

The Swedish company has lost business in China since Sweden banned China's Huawei from its 5G rollout. China now accounts for a low single-digit share of group income, down from more than 11% before Sweden's ban, according to Ericsson.

However, that has been offset by strong demand elsewhere. "We've seen North America continue to grow very strongly and we grew there by 16% on a quarterly basis in constant currency terms," Chief Financial Officer Carl Mellander said in a statement.

While a resurgent Nokia has increased competition in some markets, Ericsson was also able to grow in Europe and Latin America in its fiscal fourth quarter.

China started early in rolling out 5G networks, which promised faster internet speeds and technological developments such as remote operations, while other countries followed suit. Ericsson has so far signed 170 5G contracts.

"We think we are still relatively early in the 5G rollout if you look at world trends, so we will continue to see good demand for 5G going forward," CEO Börje Ekholm said in a press statement.

The company's adjusted operating income quarterly rose to 11.9 billion Swedish crowns (IDR 18.4 trillion) from 11 billion a year ago, beating the average analyst estimate of 10.30 billion Swedish crowns, according to Refinitiv data. This Excluding restructuring costs, operating income rose to 12.3 billion crowns.

While Ericsson's total quarterly revenue rose 2% to 71.3 billion crowns, beating the forecast of 68.33 billion crowns, sales in mainland China fell by 1.8 billion crowns.

"Mainland China is likely to see revenue declines for at least another quarter," Mellander said.

First-quarter revenue will also take a hit from Ericsson's court battle with Apple over royalty payments and expects first-quarter patent revenue to be 1-1.5 billion crowns, down from 2.4 billion crowns in the fourth quarter.

The company, which reports the highest quarterly cash flow, has expanded its 5G portfolio through acquisitions, spending more than 7 billion crowns to buy the two companies.

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