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Telecom Major Ericsson Beats Forecasts With Surge In Sale Of Its 5G Equipment

Telecom Major Ericsson Beats Forecasts With Surge In Sale Of Its 5G Equipment
The ban on the Chinese telecom company Huawei by the United States and a surge in demand and sale for its 5G telecom equipment helped Ericsson to comfortably beat its fourth quarter core earnings forecasts on Friday.
The better than expected performance of the Swedish company helped a surge of 7 per cent in its stocks.
Ericsson is selling more of its products and is also making more profits from each transaction as the company reported a ruse in its gross margins to 40.6 per cent during the latest completed quarter compared to gross margin of 36.8 per cent for the same period a year ago.  The profit margins of the company had hit a low of -20 per cent in 2017 but it has now managed to bring them up to the levels it had reached a decade ago.
Of particular mention is the margins for its core Networks business which reported profit margin of 43.5 per cent, against a 20 per cent growth in sales, compared to a profit margin of 41.1 per cent for the same period a year ago.  
"The competition in our industry is always cut-throat and the trick is to be ahead of the cost curve," Chief Financial Officer Carl Mellander told Reuters. "A lot of the money we invest in R&D not only goes into making better functionality and features, but also to reduce the cost structure."
The company said its operating margin of 12.5% in 2020 reached the 2022 group target range of 12-14% two years early. "The 2022 goals are simply too low," said Christer Gardell, co-founder of Ericsson shareholder Cevian Capital. "Ericsson has much more to give."
The company also beat analysts' mean forecast of 8.58 billion crowns, according to Refinitiv estimates, for its quarterly adjusted operating earnings which surged to 11 billion Swedish crowns ($1.3 billion) compared to 6.5 billion crowns for the same period a year ago.
There was a 5 per cent rise in total revenue of the company at 69.6 billion crowns which also comfortably neat estimates of 68.35 billion crowns.
"This reflects continued high activity levels in North America and North East Asia, and also in Europe where we further increased the market share," Chief Executive Börje Ekholm said.
The company managed to beat its Nordic rival Nokia in securing 5G radio equipment contracts from China's three largest telecom operators as business for its North East Asia region which includes China.
Nokia is to report its earnings for the fourth quarter next week.
The company could face some problems to its business in China because of the decision of the Swedish government to exclude Chinese vendors from its 5G networks, Ericsson has warned. But no material impact of that move has been seen so far by the company, Mellander said.
The Swedish ban on Huawei has been criticised by Ericsson and there have been reports of the company contemplating leaving Sweden over the issue.
Such reports were however demined by Mellander. "We will remain a Swedish domiciled company," he said.

Christopher J. Mitchell

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