Ericsson swung to a profit and posted a revenue rise in Q3, boosted by continued traction for its 5G portfolio including wins in China which helped take its total commercial contracts for the technology to 112.
CEO Borje Ekholm said in an earnings statement the company continued “to win footprint in several markets leveraging our competitive 5G portfolio”, adding its performance throughout 2020 had strengthened its confidence on delivering on its annual targets.
Growth in the company’s Networks division was a major driver in Q3, as net sales rose 6 per cent year-on-year to SEK41.7 billion ($4.8 billion) on gains in North East Asia and North America.
Ekholm added 5G contracts in mainland China had developed according to plan, contributing positively to profit, and were expected to improve further. He said its business in Europe also grew, based on several footprint gains.
But its other business units did not perform so strongly: Digital Services revenue dropped 12 per cent to SEK8.7 billion on lower legacy equipment sales; Managed Services fell 14 per cent to SEK5.5 billion on declines in North America and increased R&D investments; while its Emerging Business and Other segment registered a 3 per cent reduction to SEK1.6 billion.
Net sales grew 1 per cent to SEK57.5 billion, with net income of SEK5.6 billion overturning an SEK6.9 billion loss in Q3 2019 caused by provisions relating to a US regulatory investigation.
Gross margin improved from 37.8 per cent to 43.2 per cent, its highest level since 2006.
He expects further growth towards the end of the year and into 2021, as it builds on the deals it has already made: “5G is very early in the cycle, and there are a number of contracts that we have announced. There will be a densification of those contracts, there will be mid-band additions to deliver.”
A key focus is “making sure those initial customers, the 112 we have announced” densify their networks to ensure high-levels of performance, he explained.
Jejdling highlighted North America and China as strong possibilities for future growth.
Ericsson already secured 5G contracts in China, but there could be challenges ahead if the nation retaliates against a decision by Sweden (the vendor’s home market) to block Huawei and ZTE from its next-generation networks.
Jejdling said it was “very difficult” to comment on the situation, but emphasised how important China was for the Swedish vendor.
“We expect to see half a million 5G base stations in China by the end of the year, so it is really critical for us to be part of the innovations that happen on top of a very innovative economy.”
“So we continue to look forward to working with our Chinese customers. That’s the only way we can react to this.”