Ericsson Strengthens its Position and Writes Down Assets in China

Ericsson Strengthens its Position and Writes Down Assets in China
Ericsson

Ericsson has increased its footprint in China through 5G contract awards from all three major operators in China. The strengthened market position is strategically important for them, as this will generate scale advantages and strengthen Ericsson’s position in the world’s largest 5G market.

Overall, Ericsson’s 5G business in China is expected to have healthy profitability over the life of the contracts. However, the margins during the second quarter of 2020 are expected to be negative due to high initial costs for new products. In the 1Q20 earnings report, Ericsson communicated that an increasing share of strategic contracts was expected to weigh negatively on profitability in the second quarter, primarily driven by temporary negative gross margin in China.

In addition, the second quarter will be impacted by a cost of around one billion Swedish kroner (€96 million) related to asset write-downs of pre-commercial product inventory for the Chinese market. The compny said that the cost will be reported in segment Networks, impacting gross margin.