Ericsson Sees China Revenues Fall As Trade War Bites

Matthew Broersma,
Ericsson's headquarters in Sweden. Ericsson

Ericsson reports revenue hit in China and predicts ‘materially lower market share’ there, following Sweden’s move to ban Huawei 5G equipment

Swedish telecoms equipment giant Ericsson says it is no longer expecting previously anticipated 5G contract wins in China, as the company begins to experience fallout from its entanglement in a trade war between the US and China.

The news sent Ericsson’s shares down more than 8 percent on Friday.

Ericsson has previously warned that its business in China could be harmed by Sweden’s move to ban 5G equipment from Chinese telecoms equipment company Huawei last October.

In the second quarter Ericsson’s sales in China fell by 2.5 billion Swedish crowns (£210m), the first drop in three years, the company reported in a call with analysts.

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Asked during the call if Ericsson thought it could recoup the funds, chief executive Borje Ekholm replied, “No, it’s not coming back.”

Just under 10 percent of Ericsson’s revenues derive from China and chief financial officer Carl Mellander said the company is now predicting “materially lower market share” in the country.

In spite of China preparing for the second round of its far-reaching 5G infrastructure build-out, Mellander said tenders expected during the second quarter did not take place.

Initial contract allotments are expected to be announced before the end of July, Reuters reported.

Ericsson wrote down about 1 billion crowns’ worth of product inventory in China last year and wrote down a further 300m crowns in the second quarter.

It said network sales were strong in most other markets and signed a five-year, $8.3bn (£6bn) contract with Verizon to provide equipment for Verizon’s 5G network in the US, its single largest deal to date.

Revenue hit

Under the Verizon deal, Ericsson will supply its 5G Massive MIMO C-band, low-band and millimeter wave (mmWave) systems for Verizon’s 5G Ultra Wideband network.

Nevertheless, the Chinese decline meant group revenues, at 54.9bn crowns, fell below analysts’ forecasts of 57.2bn crowns.

Core earnings stood at 5.8bn crowns, up from 4.5bn crowns year-on-year, but also missing analysts’ forecasts of 6.01bn crowns, according to Refinitiv.

By contrast, Finland’s Nokia said it is raising its full-year outlook due to a stronger-than-expected second quarter.

Sweden was one of a number of European countries, including the UK, to ban Huawei 5G equipment following diplomatic pressure from the US, which has been involved in a trade war with China since 2018.