Ericsson Says Pandemic May Set Back European 5G Rollouts

(Bloomberg) --

Ericsson AB said Europe risks falling further behind on fifth-generation networks as phone carriers postpone upgrades to the latest cellular technology due to coronavirus lockdowns.

• The pandemic is already making it harder for the communications equipment supplier to deliver its services, though this had only a limited effect on operating income and cashflow during the first quarter, the company said in a statement.

Key Insights

• Ericsson and peers such as Nokia Oyj are seen as relatively insulated from the virus pandemic as demand for communication services is holding up with the shift to home working and schooling.
• However, the pandemic has led to the postponement of European 5G spectrum auctions in countries including Spain, Austria and Poland, and a U.K. auction scheduled for the second quarter could also be delayed.
• A general pushback in 5G investments would be a setback for Ericsson, which has gone through a turnaround under Chief Executive Officer Borje Ekholm by focusing on the development of a competitive 5G product portfolio.
• Ekholm said there is near-term uncertainty around sales volumes due to Covid-19 and the macroeconomic situation, but with current visibility “we have no reason to change our financial targets for 2020 and 2022.”

Market Context

• A rebound in Ericsson stock that began in mid-March, driven by optimism that it can weather the pandemic relatively unscathed, has erased most of its decline since the start of the year.

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• Ekholm said Ericsson still sees the market for radio access networks growing 4% this year, though sequential sales growth in the second quarter will be “somewhat lower than normal”.
• The risk of 5G investment delays “means that Europe may fall behind on a critical digital infrastructure for the future,” he said. “We believe governments should encourage 5G investments as a way to restart economies.”
• See the numbers here

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