Ericsson profit surged as Huawei ban offsets hit from pandemic

[STOCKHOLM] Ericsson reported stronger-than expected profit as the network equipment vendor gained market share amid government restrictions on gear from China's Huawei Technologies, offsetting the impact of the pandemic.

The Stockholm-based company said Wednesday third-quarter adjusted operating profit surged 38 per cent to nine billion kronor (S$1.39 billion), beating the average analyst estimate of 6.44 billion kronor.

Adjusted gross margin rose to the highest since 2006, at 43.2 per cent, beating an analyst estimate of 39.12 per cent.

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Ericsson gained market share in China and Europe as it and its Finnish rival Nokia Oyj stand to benefit from a push to restrict the use of Huawei gear for the next generation of wireless technology. On Tuesday this spread to its home country of Sweden, where the government said operators will be blocked from the country's 5G spectrum auction if they plan to use equipment from Chinese vendors.

"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 officer Borje Ekholm said in a statement.

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The pandemic hit sales in Latin America and Africa, though elsewhere they are holding up as operators are continuing to invest in 5G technology and, in some cases, have had to increase capacity amid data traffic surges in some parts of their networks.

Ericsson reiterated its targets of 230 billion kronor to 240 billion kronor in sales for this year, with an adjusted operating margin of more than 10 per cent. For 2022, it has an adjusted operating margin goal of 12-14 per cent.

The company said it expects to close its purchase US wireless solutions provider CradlePoint in the fourth quarter, and the US$1.1 billion purchase should advance its strategy to win market share in the enterprise market for 5G.

Ericsson shares have risen about 20 per cent this year, outperforming Nokia, whose stock has gained about 8 per cent in the same period.

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