Telecommunications equipment manufacturer Ericsson exceeded quarterly earnings expectations and raised its market outlook for 2019 as well as its sales target for 2020, driven by a faster-than-anticipated roll-out of high-speed 5G networks.
Ericsson CEO Börje Ekholm said, “We see a much faster pace of introduction of 5G than expected,” highlighting particularly strong demand in the United States and South Korea. The company’s shares rose as much as 7.4% to a three-month high of SEK 89.94, also lifting shares of rival Nokia.
In the third quarter of 2019, Ericsson’s adjusted operating income increased to SEK 6.5 billion, up from SEK 3.8 billion a year earlier, representing an 11.4% operating margin. This result beat the average analyst forecast of SEK 5.2 billion in a Refinitiv poll.
The company said it expects 5G deployments in China to begin in the near term, where Ericsson has invested to grow its market share. Ericsson cautioned these early deployments may carry more challenging margins initially. As a result, the firm adjusted its long-term margin goal for 2022 to 12–14%, up from the prior target of above 12%.
Ericsson now forecasts that the Radio Access Network (RAN) equipment market will expand by 5% in 2019, up from its July projection of 3% growth.
Analysts responded positively to the results: Credit Suisse described Ericsson’s Q3 2019 performance as “better on all metrics,” while Carnegie called the update “very strong.”
The growth of 5G is emerging amid broader geopolitical tensions between the United States and China. 5G networks are expected to support critical infrastructure and services—from autonomous vehicles and smart energy grids to military communications—making network equipment a national security concern for many countries.
Washington has placed Chinese supplier Huawei on a trade blacklist and led efforts to persuade allies to exclude the firm from their 5G networks, citing concerns that Huawei’s equipment could be used by Beijing for intelligence collection—allegations the company denies.
Ericsson, which alongside Nokia and Huawei supplies the majority of RAN equipment essential for 5G mobile services, raised its sales target for 2020 to SEK 230–240 billion, up from a previous range of SEK 210–220 billion.
Interested in hearing industry leaders discuss subjects like this? Attend co-located events such as IoT Tech Expo, Blockchain Expo, AI & Big Data Expo, and Cyber Security & Cloud Expo World Series, which host conferences in locations including Silicon Valley, London, and Amsterdam.