Ericsson Reports Profit, Market Share Gains After Huawei Ban

(Bloomberg) -- Ericsson reported stronger-than-expected profit as the network equipment vendor gained market share, particularly from non-Chinese rivals, after government restrictions on gear from Huawei Technologies Co..

• The Stockholm-based company said Wednesday third-quarter adjusted operating profit surged 38% to 9 billion kronor ($1.03 billion), beating the average analyst estimate of 6.44 billion kronor. The adjusted gross margin rose to the highest since 2006, at 43.2%, beating an analyst estimate of 39.12%.
• “Our investments in technology leadership has also allowed us to continue to gain market share, and it’s worth mentioning that most of these gains come from non-Chinese competitors,” Chief Executive Officer Borje Ekholm said on a conference call.

Key Insights

• Ericsson gained market share in China and Europe as it and its Finnish rival Nokia Oyj stand to benefit from a push to restrict the use of Huawei gear for the next generation of wireless technology. On Tuesday this spread to its home country of Sweden, where the government said operators will be blocked from the country’s 5G spectrum auction if they plan to use equipment from Chinese vendors.
• “While the pandemic has hurt revenues for several of our customers, and in some cases this has led to a reduction of capex, we have not seen any negative impact on our business, largely due to footprint gains,” Ekholm said in a statement.
• The pandemic hit sales in Latin America and Africa, though elsewhere they are holding up as operators are continuing to invest in 5G technology and, in some cases, have had to increase capacity amid data traffic surges in some parts of their networks.
• Ericsson reiterated its targets of 230 billion kronor to 240 billion kronor in sales for this year, with an adjusted operating margin of more than 10% and in 2022, 12% to 14%. Chief Financial Officer Carl Mellander said in an interview that a pickup in software sales won’t be repeated in the fourth quarter.
• “The strong growth was driven by the networks division where especially 5G sales in China had a strong run,” Jakob Magnussen, Chief Analyst at Danske Bank Credit Research said in a note. The report “underscores Ericsson’s strong metric trajectory and we would not be surprised to see Ericsson being upgraded to IG (investment grade) level in the short term.”

Market Reaction

• Ericsson shares rose about 7% Wednesday. The stock had gained about 20% in the year to Tuesday, outperforming Nokia, whose stock has gained about 8% in the same period.

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• Read the statement here.

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