Ericsson's third-quarter earnings shine as margins rise, 5G rolls out in China

© Reuters. FILE PHOTO: A general view of an exterior of the Ericsson headquarters in Stockholm

By Helena Soderpalm and Supantha Mukherjee

STOCKHOLM (Reuters) – Sweden’s Ericsson (ST:) on Wednesday reported quarterly core earnings that beat market estimates, helped by higher margins and China’s 5G rollout, and said it was “more confident” in meeting its 2020 targets.

Ericsson’s 5G contract wins have touched 112 as more telecom operators are building next-generation networks and as diplomatic pressure from the United States is pushing out market leader Huawei from more countries.

Third-quarter adjusted operating earnings rose to 9.0 billion Swedish crowns (795.6 million pounds) from 6.5 billion a year ago, beating the mean forecast of 6.98 billion crowns, according to Refinitiv estimates.

Total revenue rose 1% to 57.5 billion crowns.

“While the pandemic has hurt revenues for several of our customers, and in some cases this has led to a reduction of capex, we have not seen any negative impact on our business, largely due to footprint gains,” Chief Executive Borje Ekholm said in a statement.

The group’s gross margin, excluding restructuring charges, rose to 43.2% in the third quarter from 37.8% in the year-ago period.

“The 5G roll out in China was the big driver in this quarter,” Ericsson CFO Carl Mellander told Reuters.

Ericsson said contracts in China have developed according to plan, contributing to profits in the third quarter and are expected to improve further.

Unlike its Nordic rival Nokia (HE:), Sweden-based Ericsson has won contracts from all three major operators in China to supply radio equipment for 5G networks.

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However, a decision by the Swedish government to block China’s Huawei and ZTE (SZ:) from domestic 5G networks may lead to a catch-22 situation for Ericsson. While it may win some more share in Sweden’s network infrastructure, the risk of a retaliation by China looms large.

“We don’t comment on different countries’ decisions but in general we believe in free competition,” Mellander said.

China’s telecom regulator issued a notice on Tuesday calling for strengthening of supervision of foreign-invested telecom companies in the country.

Separately, Ericsson announced on Wednesday a five-year, multi-billion crowns deal with Telia (ST:) to upgrade its 4G networks across Sweden and Estonia.

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