Ericsson sees 5G slowing in Europe but offset by China

Ericsson plans to cut about 400 jobs in the next year at the antenna business Kathrein, which it recently acquired. (Photo of Börje Ekholm/Ericsson)

Ericsson reported today that its first quarter 2020 results saw limited impact from the COVID-19 pandemic. Sales were $4.93 billion, an increase of 2% year-over-year, but sales declined 2% when adjusted for constant currency. Net income was $230 million, a decline of 5% year-over-year.

Ericsson CEO Börje Ekholm said in a statement, “We expect our industry to show resilience throughout the pandemic, and we are well positioned with a competitive 5G product offering and cost structure.“

Unlike IBM, which suspended its guidance for the remainder of 2020, Ericsson said there is near-term uncertainty around sales volumes due to COVID-19 and the macroeconomic situation, “but with current visibility we have no reason to change our financial targets for 2020.” However, he added that “the current global uncertainty requires a humble attitude towards predicting the near-term future,” and he expects “the second quarter is likely to be a tad softer than normal.”

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Ericsson mentioned that several operators have awarded it 5G Core contracts, which are expected to start generating material revenues in 2021. Last week BT said it had chosen Ericsson to deploy a cloud native, container-based, mobile packet core for 4G and 5G services. The award to Ericsson comes after the U.K. government is requiring BT and other operators to remove Huawei equipment from their core networks.

“With growth in data in general and with working from home as the new normal in many countries, good connectivity is more important than ever,” said Ekholm. “For 2020 we estimate the RAN market to grow by 4%, however for Q2 we expect somewhat lower than normal sequential sales growth as there are uncertainties impacting short-term growth negatively.” Ericsson is getting its RAN projections from the Dell'Oro Group.

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Ekholm said China is speeding up investments in 5G, but Europe is slowing down. The trends result in a neutral affect for Ericsson. He said the company expects an acceleration in the second half of 2020 partly driven by China where it recently won 11% of a $5.6 billion 5G contract from China Mobile. Ekholm also expects 5G business to ramp in the United States in the second part of the year, especially now that the merger uncertainty around T-Mobile and Sprint has been resolved.

Kathrein antenna business

In October 2019, Ericsson acquired the antenna and filter technology division of Germany-based Kathrein. The Swedish vendor said adding Kathrein’s capabilities in the area of advanced active and passive antennas is increasingly important as 5G evolves.

In today’s call, Ekholm said, “We see the importance of offering integrated site solutions between 4G and 5G to our customers. That will be partly in more complicated antennas systems like massive MIMO but also in the more passive antennas.” Ericsson is increasing its investment in developing the portfolio of Kathrein, but the company expects that will take between 18-24 months.

In the meanwhile, Ericsson plans to cut about 400 jobs at Kathrein in the next year. It began an “internal efficiency program” at Kathrein yesterday. Restructuring charges $49.5 million are expected for 2020, with anticipated annual run rate savings of $29.7 million.