Ericsson Holds On to 2022 Goals Even as Investors Want More

Ericsson’s chief executive dismissed investor calls for the company to raise its ambitions after a fast pace of 5G buildouts helped the Swedish network-equipment vendor reach its profitability target two years early.

The Stockholm-based company reported a higher operating profit than expected in the fourth quarter of 2020 and ended the year with an adjusted operating margin well within the 12-14% range it had aimed to reach by 2022. In an interview with Bloomberg TV, Chief Executive Officer Borje Ekholm said that as the company will invest in research and development to take a larger share of the market, he isn’t planning to revise the targets.

Ekholm’s comments come after activist investor Christer Gardell, whose Cevian Capital is Ericsson’s second-largest shareholder, said the company should aim higher after it “butchered” expectations for the fourth quarter.

“The targets for 2022 are simply too low,” he said in emailed comments. “Ericsson has a lot more to give.”

Ericsson shares gained 6% in early Stockholm trading.

Ericsson has gained market share in the global market for mobile network equipment as its main rivals, Finland’s Nokia Oyj and China’s Huawei Technologies Co., are facing technological and political challenges. Nokia made some costly missteps in the early phases of developing 5G products, and Huawei is facing pressure as governments across the world are imposing restrictions on the company amid concerns that it could become a tool for intelligence-gathering by the Chinese state.

The pressure on Huawei could also become a problem for Ericsson, after its native country banned Chinese vendors from building Swedish 5G networks. Ericsson derived 8% of sales from China last year and is supplying 5G products for all three major Chinese operators. Hence, any retaliation could become costly for the Swedish company.

The pandemic has done little to slow down 5G expansion as operators are racing to upgrade their mobile networks to the new, faster technology. In the fourth quarter, Ericsson’s sales of network products and services increased 11% from the year-ago period, driven by higher hardware sales.

©2021 Bloomberg L.P.

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