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Increased 5G Costs And Drop In Demand In US Hits Ericsson


01/24/2020


Increased 5G Costs And Drop In Demand In US Hits Ericsson
There was a sharp rise in fourth-quarter core earnings for Ericsson as reported by the Swedish telecoms equipment group. It however said that this quarter is traditionally its best season which was hit by a slowdown in its business in the United States despite it doing good in the market in recent times.
 
However the markets were expecting a better growth in the company’s core earnings. The company also said that its performance in 2020 will also be impacted by higher costs as the company seeks to leverage its market dominant position in the development of equipment for 5G mobile connectivity.
 
However the company also noted that its business of 5G roll out in the United States helped it to reverse the trend of low earnings in recent years. The company also simultaneously noted that while sales had gone up because of increase in 5G roll out, associated costs had also increased. As a strategy, Ericsson had decided to work with clients who are strategically important so that it is able to consolidate and gain market share even as it meant taking a hit on its margins in the short term but helping the company in securing longer-term profitability and sustainability.
 
With the aim of boosting its 5G portfolio, the antenna and filter business of Germany’s Kathrein was recently bought buy the company. Ericsson said that its margins for 2020 would be affected because of the costs and investments related to the deal.
 
It is also likely that the operating costs of the company would go up in 2020 because of the company increasing its investments in digitization and increased expenditure for compliance – that included ones like the $1 billion fine paid to US regulators for resolving probes into corruption.
 
Despite these headwinds, Ericsson is on track to meet its targets for 2020 which included achieving an adjusted operating margin of more than 10 per cent and a sales target of 230 to 240 billion Swedish crowns, said the company’s CEO Borje Ekholm.
 
“Our focused strategy with increased investments in R&D combined with operational efficiency is paying off. We have regained technology leadership, recovered previously lost ground in several markets and improved the financial results. Today, we are a leader in 5G with 78 commercial 5G agreements with unique operators and 24 live 5G networks on four continents. Operating margin excluding costs related to the resolution of the US SEC and DOJ investigations and restructuring charges was 9.7% for full-year 2019, almost reaching the target of more than 10% one year early,” Ekholm said.
 
In the business segment of the roll out of 5G mobile networks, the closest rivals of Ericsson are Nokia and Huawei.
 
So far, the bets market for Ericsson for 5G has been North America where it has seen an increase in sales. However the company said that here was a slowdown in demand in that market during the fourth quarter as two important mobile connectivity carriers in the market Sprint (S.N) and T-Mobile cut down on their spending because of the proposed merger between the tow companies, Ericsson said.
 
(Source:www.reuters.com & www.ericsson.com)