(Bloomberg Opinion) -- It was possibly the most diplomatic way of asking Ericsson AB if it will benefit from the concerted pressure on telecommunications firms not to buy equipment from Huawei Technologies Co.
“There have been press reports in various countries that telcos are becoming less enthusiastic about using kit from some of your competitors due to security concerns,” Goldman Sachs Group Inc. analyst Alexander Duval asked executives from the Swedish firm on a conference call in which the word “Huawei” was never explicitly uttered. “Can there be scope for you to gain extra share?”
The answer from Chief Executive Officer Borje Ekholm? Possibly, sort of, maybe.
One thing was nonetheless clear from his company’s fourth-quarter earnings report. The timing of the surge in criticism that Huawei’s equipment might give Chinese intelligence agencies backdoors into key communications infrastructure is, well, critical. And Ericsson needs to ensure it makes the most of it.
Ericsson’s earnings beat analyst expectations, partly because spending on 5G mobile networks is gaining pace more quickly than it expected. In fact, the Stockholm-based company said it didn’t yet have enough manpower in the U.S. to install equipment at the pace its customers are demanding.
Although the likes of Verizon Corp. and AT&T Inc. aren’t yet operating 5G antennae, they are investing in the underlying infrastructure the technology will need, not least the fiber optic networks. In a sense, they’re laying the pipes in order to be ready for the shiny new data faucets.
That’s also why the timing of the criticism has been so detrimental for Huawei. Just as Ericsson and its Nordic rival Nokia Oyj start to benefit from the upswell in 5G spending, the Chinese company is at huge risk of missing out on the bonanza. Carriers are thinking twice about using its gear: at the same time as Ekholm and his colleagues addressed analyst questions from Stockholm, Vodafone Group Plc CEO Nick Read was telling journalists in London that his firm had suspended purchases from Huawei.
It’s not obvious that Ericsson and Nokia are immediately in a position to exploit the opportunity. Firstly, they have to ensure they’re up to scratch technologically – Huawei’s research and development budget over the past five years swamps their efforts. Ericsson seems aware of the problem, and said on Friday it was accelerating its R&D outlay. Secondly, as Ericsson’s staffing difficulties in the U.S. illustrate, it had better make sure it has the capacity to meet the demand to install it.
As it stands, it looks like the Nordic firms have a lot of catching up to do. Even though Ericsson says 5G spending is coming faster than expected, there’s still time – companies are still in decision-making mode about their expenditure over the next few years. But that also means there’s time for Huawei to try to repair its reputation.
While Ericsson and Nokia are being presented with a gift, it’s not necessarily going to be easy for them to seize it. You can see why Ekholm preferred to equivocate.
To contact the editor responsible for this story: Jennifer Ryan at jryan13@bloomberg.net
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Alex Webb is a Bloomberg Opinion columnist covering Europe's technology, media and communications industries. He previously covered Apple and other technology companies for Bloomberg News in San Francisco.
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