Ericsson strengthens China market share; wins 5G contracts with all three major operators

Telecom giant Ericsson has revealed that the company has managed to increase its footprint in China through 5G contract awards from all three major operators in China.

Ericsson says that the strengthened market position is strategically important for the company, scaling up advantages and sealing its position in China's 5G market, which is expected to be an important driver of critical future requirements and new feature developments.

With this, Ericsson says its 5G business in China is expected to have healthy profitability over the life of the contracts. However, the margins during the second quarter of 2020 are expected to be negative due to high initial costs for new products.

"In the Q1 2020 earnings report, we communicated that an increasing share of strategic contracts was expected to weigh negatively on profitability in the second quarter 2020 primarily driven by a temporary negative gross margin in China. In addition, the second quarter will be impacted by a cost of around SEK 1 b. related to asset write-downs of pre-commercial product inventory for the Chinese market. The cost will be reported in segment Networks, impacting gross margin.

While the deployment of 5G in China will continue to be dilutive to Segment Networks gross margin short-term, it is expected to contribute positively to gross and operating income from the second half of 2020 and in line with the business plan be profitable over time.

With current visibility, we maintain the financial targets for 2020 and 2022," says Ericsson in its press note.