Abu Dhabi, UAESaturday 17 August 2019

Ericsson soars back to profit and shares hit four-year high

Strong growth in North America and cost cuts help as sales of 5G equipment in North America, the company's biggest market, drove growth

Ericsson building in Stockholm. The firm may gain from Huawei suspicions in Europe. Reuters
Ericsson building in Stockholm. The firm may gain from Huawei suspicions in Europe. Reuters

Ericsson posted a first-quarter profit on Wednesday that swept past forecasts due to strong growth in North America and cost cuts, spurring the telecom equipment maker to boost its full-year outlook for the global networks market.

Its shares rose more than 3 per cent to a four-year high.

Profit beat expectations for a fifth straight quarter, as the Swedish company slashes costs following an industry-wide downturn in the middle of the decade, and as a new cycle of network upgrades kicks in for next-generation 5G equipment.

The company counts Huawei as one of its main rivals and some analysts see potential benefits from western suspicions of the Chinese group after Washington alleged its gear could be used by Beijing for spying.

Ericsson chief financial officer Carl Mellander said the Huawei situation had not yet affected orders but acknowledged security concerns could play a role in customer decisions.

"We said earlier that we don't see it in the order books, but generally speaking the competitiveness we now have in our radio portfolio, through all technology investment we have done, matters," Mr Mellander told Reuters.

Huawei has rejected the allegations and launched a lawsuit against the US government.

Excluding restructuring charges related to a revamp of its Business Support System unit and one-off items, the operating margin was 7.2 per cent. The company has pledged to hit an underlying target of more than 10 per cent in 2020.

Sales of 5G equipment in North America, the company's biggest market, drove growth, while Europe lagged due partly to a lack of spectrum access, a poor investment climate, and uncertainties related to future vendor market access.

Ericsson said it now expects the Radio Access Network (RAN) equipment market to grow by 3 per cent this year, up from a previous forecast for 2 per cent growth.

Ericsson also warned that probes by the US Securities and Exchange Commission and Department of Justice could result in "material financial and other measures".

It previously said it had initially received questions from US authorities in March 2013. The company has not commented on media reports that US authorities were investigating its business practices in Romania and China, but said in October it had dismissed 50 people due to the probe.

"We can see now that it is out of the question that we will come out of this with no consequences," Mr Mellander said. "How much and of which nature and when, we really cannot say."

Ericsson swung to a quarterly operating profit of 4.9 billion Swedish kroner (Dh1.94bn) from a 312 million kroner loss a year ago, well above a mean forecast for a 2.8bn kroner profit in a Reuters poll. Sales rose to 48.9bn kroner versus a forecast of 48.2bn kroner.

Ericsson said Tuesday that China's market regulator was investigating the company over licensing issues as countries around the world prepare to roll out the next generation of mobile networks.

China's State Administration of Market Regulation is investigating the firm due to complaints against its intellectual property rights licensing in China, a spokesperson for Ericsson told AFP.

The telecom gear maker earns about 7 per cent of its revenue in China, according to its 2018 annual report.

China's market regulator dispatched about 20 investigators to raid Ericsson's Beijing office on Friday, The Wall Street Journal reported earlier, citing a person familiar with the matter.

"Ericsson is fully cooperating with the investigation and will refrain from further comments while it is ongoing," a spokesperson for the company said.

Updated: April 17, 2019 12:46 PM

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