Ericsson earnings shine, but a corruption investigation looms

Ericsson private LTE
Ericsson predicts that the resolution of an investigation by the SEC will result in "material financial and other measures.” (FierceWireless)

Ericsson reported strong first-quarter 2019 earnings this morning, with net sales of $5.3 billion, an increase of 7% year over year, adjusted for constant currency. The company attributed the growth to its 5G business, particularly in North America.

“To date we have publicly announced commercial 5G deals with 18 named operator customers, which, at the moment, is more than any other vendor, said Ericsson President and CEO Börje Ekholm.

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Besides its North American customers, which include Verizon, AT&T, T-Mobile and Sprint, Ericsson is also working with operators in South Korea to deliver 5G mobility and other services. The company also expects large-scale deployments of 5G to commence by the end of 2019 with customers in other parts of Asia.

Although Ekholm didn’t specifically address it, just last week, Chinese investigators raided Ericsson’s offices in Beijing after receiving complaints about the licensing fees that Ericsson charges phone makers, according to The Wall Street Journal.

RELATED: China investigates Ericsson over patent licensing complaints

In other 5G deals, Ericsson on Wednesday also announced with Swisscom that they have jointly switched on the first large-scale commercial 5G network in Europe, following Swisscom's securing of a commercial 5G license. As all the other component parts were already in place, securing the license meant the partners simply had to switch the network on. Swisscom had already introduced smartphone and mobile router ecosystem partners, at an April 10 ceremony in Zurich.

Swisscom's commercial 5G network, and related 5G services, are now available in 54 cities and communities in Switzerland, including the major population areas: Zürich, Bern, Geneva, Basel, Lausanne and Lucerne.

On today’s earnings call, Ekholm bemoaned the spectrum situation in Europe. “The development in other parts of Europe is considerably slower primarily due to lack of spectrum, poor investment climate and additional uncertainties related to future vendor market access,” he said. He said European regulators are “trying to maximize the revenues from spectrum auctions instead of considering the macro-economic benefits from building the telecom network.”

In other wireless-related comments, Ekholm mentioned that during the first quarter, Ericsson announced its intent to acquire the German company Kathrein's antenna and filters business. The deal is expected to close in the third quarter 2019. “This will further expand our capabilities in the advanced active and passive antenna domains, which are growing in importance as 5G evolves,” he said.

SEC investigation into corruption

Ericsson has been cooperating since 2013 with an investigation by the United States Securities and Exchange Commission (SEC) and, since 2015, with an investigation by the United States Department of Justice (DOJ) into Ericsson's compliance with the U.S. Foreign Corrupt Practices Act (FCPA). It’s unclear what the corruption investigation pertains to, although some press reports have said it relates to bribery scandals dating back more than a decade.

“We continue to cooperate with the SEC and the DOJ, and have recently begun settlement discussions,” said Ekholm, adding that the time-frame for the investigation is unknown and the company can’t elaborate on the content of the investigations. “However, based on the current status of the discussions it is our assessment that the resolution of these matters will result in material financial and other measures,” he said.