Ericsson beats forecast as 5G demand offsets troubles in China

  • Revenue rose 2% to 71.3 billion kronor from est 68.33 billion kronor
  • Sales in mainland China fall by 1.8 billion kroner
  • More M&A in prospect – CFO

STOCKHOLM, January 25 (Reuters) – Ericsson (ERICb.ST) topped quarterly core earnings forecasts on Tuesday, sending its shares up 8% as global demand for telecom equipment for 5G networks offset further market share losses in mainland China.

The Swedish company is losing business in China since Sweden banned China’s Huawei (HWT.UL) from its 5G rollout. China now accounts for a low single-digit share of group sales, up from more than 11% before the Swedish ban, Ericsson said.

However, this was offset by robust demand elsewhere.

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

During a resurgent Nokia (NOKIA.HE) Ericsson also grew in Europe and Latin America during the fiscal fourth quarter as a result of increasing competition in several markets.

China was early to roll out 5G networks – promising higher speeds and the development of technologies like remote surgery – but other countries are catching up. Ericsson has signed 170 5G contracts so far.

“We think we’re still relatively early in 5G rollout when you look at the globe, so we’ll continue to see good demand for 5G going forward,” CEO Börje Ekholm said in a conference call.

The company’s adjusted quarterly operating profit rose to 11.9 billion Swedish kronor ($1.28 billion) from 11 billion a year ago, beating analysts’ median forecast of 10.30 billion, according to data from Refinitiv.

Excluding restructuring costs, the operating result rose to 12.3 billion crowns.

While Ericsson’s total quarterly revenue rose 2% to SEK 71.3 billion, beating estimates of SEK 68.33 billion, sales in mainland China fell SEK 1.8 billion.

Mainland China is expected to see at least another quarter of sales decline, Mellander said.

First quarter earnings will also be impacted by Ericsson’s lawsuit with Apple (AAPL.O) on royalties and expects patent revenues of 1-1.5 billion kronor in the first quarter compared to 2.4 billion kronor in the fourth quarter.

The company, which reported its highest-ever quarterly cash flow, has expanded its 5G portfolio through acquisitions, spending more than $7 billion to buy two companies.

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

($1 = 9.2836 Swedish Krona)

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Reporting by Supantha Mukherjee in Stockholm Editing by Louise Heavens and Mark Potter

Our standards: The Thomson Reuters Trust Principles.

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