Ericsson Ends Run of Earnings Beats With Asia Warning

Ericsson posted earnings that missed analyst estimates for the first time in six quarters and warned its rollout of 5G mobile networks in Asia would weigh on profits, according to Bloomberg. It is a rare setback to CEO Borje Ekholm’s turnaround efforts.

With Ericsson battling Finland’s Nokia and China’s Huawei for pole position in 5G, Ericsson said the first big deployments in Asia will gradually pull down margins, although not enough to jeopardize profitability targets for 2020. With Huawei targeted by a U.S. campaign to have it blocked on security grounds, its Nordic rivals may be able to pick up more work.

Ekholm has ended a run of disastrous results by cutting costs, dropping unprofitable business lines and investing more in research so Ericsson can ride the wave of 5G spending. He’s cautioned that the company may experience temporary setbacks as its focus is on building a stronger business in the longer run.

The Swedish vendor’s adjusted operating profit rose to 3.9 billion kronor ($415 million) from 2.0 billion kronor a year earlier. That compared with the average estimate of 4.4 billion kronor in a Bloomberg survey of analysts. All of Ericsson’s businesses units except its networks division posted results below estimates, showing Ekholm has more work to do after a successful turnaround of the company’s biggest unit.

The CEO suggested that analysts may have been overestimating results in the digital services and managed services units. “I sometimes like to say that maybe the analysts have missed,“ Ekholm said. “We have said that improvements will not be linear and they will vary from quarter to quarter.“