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Tuesday, 07 July 2020
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The News and Media Division of The Insight Partners
Monday, 08 Jun 2020 01:00 pm

Ericsson Strengthens its Position in China and Writes Down Assets

The overall 5G business in China is expected to have a healthy profitability and is in line with our plans

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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 Ericsson as this will generate scale advantages and strengthen Ericsson's position in the world's largest 5G market, which is expected to be an important driver of critical future requirements and new feature developments.

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 Q1 2020 earnings report we communicated that an increasing share of strategic contracts was expected to weigh negatively on profitability in the second quarter 2020 primarily driven by temporary negative gross margin in China. In addition, the second quarter will be impacted by a cost of around SEK 1 b. related to asset write-downs of pre-commercial product inventory for the Chinese market. The cost will be reported in segment Networks, impacting gross margin.

While the deployment of 5G in China will continue to be dilutive to Segment Networks gross margin short-term, it is expected to contribute positively to gross and operating income from the second half of 2020 and in line with the business plan be profitable over time.

With current visibility we maintain the financial targets for 2020 and 2022.

Tags Ericsson 5G China Network Business Assets

Neha Pandey

Aware of her elements, Neha writes the best articles across industries including electronics & semiconductors, automotive & transportation and food & beverages. Being from the finance background she has the ability to understand the dynamics of every industry and analyze the news updates to form insightful articles. Neha is an energetic person interested in music, travel, and entertainment. Since past 5 years, she written extensively on sectors like technology, finance and healthcare.


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