Ericsson’s 5G march hits a wall in China

Sweden’s Ericsson on Friday reported second-quarter core earnings below market estimates, as strong sales of 5G equipment in most markets was offset by a decline in sales in mainland China.

Total sales for the telecom equipment maker, a rival of China’s Huawei Technologies Co Ltd and Finland’s Nokia , fell for the first time in three years to 54.9 billion Swedish crowns ($6.3 billion) from 55.6 billion crowns, missing the 57.20 billion crowns expected by analysts.

While organic sales grew 8%, sales in mainland China declined by 2.5 billion crowns.

The result of the new 5G tenders in China did not come out in the quarter as expected, so the sales did not materialise as planned, Ericsson finance chief Carl Mellander told Reuters.

The initial contract allotments for the second phase of the 5G deployment in China are expected to be announced before the end of this month, according to two sources familiar with the matter.

While both Ericsson and Nokia have benefited from the ban on Huawei in several countries, the exclusion of the Chinese company in Sweden is expected to lead to a fall in revenue for the Swedish company in China.

Ericsson has been warning that Sweden’s decision to exclude Chinese vendors from Swedish 5G networks might impact its business in the Asian country, from where it generates just under 10% of its revenue.

“It’s prudent to forecast materially lower market share in China going forward,” Mellander said.

Meanwhile, Nokia, which reports earnings on July 29, is expected to get its first 5G radio contracts in China.

Ericsson on Friday signed an $8.3 billion five-year 5G contract with Verizon, its single largest deal.

The company’s quarterly adjusted operating earnings rose to 5.8 billion Swedish crowns ($669.9 million) from 4.5 billion a year ago, missing the mean forecast of 6.01 billion crowns, according to Refinitiv estimates.

Ericsson’s results also got a boost in royalty income due to settlement of a patent fight with Samsung Electronics and the company said it was in renewal negotiations with other firms.