Ericsson is bracing for what it expects will be a flat overall radio access network (RAN) market but the company is expecting to see 5G RAN grow about 11% per year over the next three years. The company said that the reason for that growth is because 5G is still in the early stages of deployment in most countries.
During the company’s Capital Market Days held last Friday, Ericsson’s top leadership told investors that it is seeing a slowdown in North America after two years of record-levels of investment, which is contributing to its flat outlook for the next few years. However, it also said that India is significantly accelerating its 5G deployments and Europe is “holding steady.”
Despite the near-term flat market, Ericsson said that it still believes that it can still grow its RAN market share beyond the current 39% (outside of China) by 1% per year and still increase gross profits.
Ericsson expects operators in advanced markets such as North America to adjust their inventory levels in 2023 as supply chain restrictions ease. But for 2024 and beyond, the company expects the wireless equipment market to remain steady as operators will need to invest in mobile infrastructure to meet growing traffic demands on the networks.
Ericsson President and CEO Börje Ekholm acknowledged that while there are some indications that data growth is slowing, it is still growing at a rate of 30% to 40% per year and that means that mobile operators will need to invest in their networks to accommodate this growth.
In addition, the company noted that about 80% of the world’s 4G footprint will need to be upgraded to 5G, which indicates there’s still a large runway for 5G infrastructure deployments.
Ericsson expects its IPR licensing revenue to increase over the next 18-24 months thanks to its recently announced multi-year global patent license with Apple. In Q3, Ericsson’s IPR licensing revenues decreased to $140 million, which dragged down the company’s quarterly results. Ericsson CFO Carl Mellander said that the company believes that now that its secured multi-year agreements with Apple and Samsung that it will be able to grow its IPR revenue. “5G handsets will be a driver for growth in licensing,” Mellander said, noting that the company also anticipates there to be opportunities for patent deals for other 5G devices beyond handsets such as IoT devices and automobiles.
Rory Read, SVP and head of global communications platform at Ericsson, and the former CEO of Vonage, which Ericsson acquired earlier this year, noted that the Vonage business hasn’t grown as quickly as originally anticipated but said that he believes it will see accelerated growth in 12 to 15 months. In addition, the company is working to capture more business with telecom service providers now that it is owned by Ericsson. But Ericsson executives also warned that the company isn’t planning to make any big acquisitions in the near-term, noting that M&A will be limited to “bolt-on acquisitions.”