Ericsson profit exceeds expectations on 5G demand despite China setback
- Adj. profits reached 8.8 billion crowns against 7.85 billion east
- Sales fall of 3.6 billion crowns in China
- Total turnover drops 2% to 56.3 billion
- China’s share of revenue drops from 10-11% to 3% – CFO
- Supply chain issues felt towards the end of the third quarter
STOCKHOLM, Oct. 19 (Reuters) – Sweden’s Ericsson (ERICb.ST) on Tuesday reported higher-than-estimated third-quarter baseline profits as strong sales of 5G equipment in most countries around the world offset a loss market share in mainland China and a severe blow to the global supply chain problems.
Sweden banned China’s Huawei (HWT.UL) from selling 5G equipment in the country a year ago and Ericsson has since lost most of its share in the latest rounds of telecommunications tenders in China. .
The proportion of revenue Ericsson derives from China has fallen to around 3% of the total, from 10% to 11%, CFO Carl Mellander said in an interview, offsetting the gains made as Ericsson filled in the gaps. left by Huawei in several countries as it retreated under pressure from the US government.
Mellander said the decline started in the second quarter and would manifest as a year-over-year loss until the same time next year. Sales in China fell by 3.6 billion Swedish kronor ($ 418.14 million) in the third quarter alone, and the company is now considering resizing its sales and delivery organization in the country.
Ericsson, a rival of Nokia (NOKIA.HE), also said problems in the global supply chain had started to be felt.
“At the end of the third quarter, we experienced some impact on sales due to supply chain disruptions, and such issues will continue to pose a risk,” CEO Börje Ekholm said in a statement.
The company has been unable to deliver certain hardware to its customers due to a shortage of chips at vendors, coupled with logistics issues, resulting in lower revenues, Mellander said.
Quarterly adjusted operating profit reached 8.8 billion Swedish kronor ($ 1.02 billion), up from 8.6 billion a year ago, beating the average forecast of 7.85 billion, according to estimates by Refinitiv.
Securing 5G contracts from the three US telecommunications companies – Verizon (VZ.N), AT&T (TN) and T-Mobile (TMUS.O) – helped the company absorb the losses in China.
Total revenue fell 2% to NKr 56.3 billion, missing the NKr 58.14 billion predicted by analysts.
($ 1 = 8.6258 Swedish kronor)
Reporting by Supantha Mukherjee, editing by Kim Coghill, Kirsten Donovan
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