- China’s sales drop to 3% of total, compared to 11%
- CFO says review of staff and offices in mainland China
- Movements come after Sweden banned Huawei from 5G equipment
- Sales fall by SEK 3.6 billion in China, total revenues fall by 2%
- The stock fell 0.3%
STOCKHOLM, October 19 (Reuters) – Sweden’s Ericsson (ERICb.ST) announced on Tuesday plans to reduce its operations in China after suffering a large reduction in sales in one of its largest markets due to reprisals for Sweden’s ban on China’s Huawei (HWT.UL) from selling 5G equipment in the country.
The news came when the company reported better-than-expected core results in the third quarter, reinforced by strong sales of 5G equipment in most of the world, which offset a loss of market share in China and a hit from global supply chain problems.
Sweden banned China’s Huawei (HWT.UL) from selling 5G equipment in the country a year ago, and Ericsson has since lost most of its stake in recent rounds of telecom bidding in China.
The share of revenue that Ericsson earns from China has fallen to about 3% of the total from 10-11%, said CFO Carl Mellander in an interview and compensated for profits that Ericsson filled the void that Huawei left in several countries when it withdrew under pressure from the US government.
Mellander said the decline began in the second quarter and would prove to be a loss from year to year to the same period next year.
China’s sales decreased by SEK 3.6 billion ($ 418.14 million) in the third quarter alone and the company now plans to reduce its sales and delivery organization in the country.
The decline in China marks a small retreat for the company, which has been in the country for over a hundred years. Last month, CEO Borje Ekholm had promised to double the efforts to regain market share in China. Read more
Ericsson, a rival to Nokia (NOKIA.HE), also said that global supply chain problems had begun to bite.
“Late during the third quarter, we experienced a certain impact on sales from disruptions in the supply chain, and such issues will continue to pose a risk,” says CEO Börje Ekholm in a statement.
The company was unable to deliver certain hardware to its customers due to chip shortages at suppliers, along with logistics problems, which led to a reduction in revenue, says Mellander.
The company’s shares fell marginally and analysts said that the restrictions in the supply chain could lead to a potential upturn for next year as demand remained strong.
Quarterly adjusted operating profit increased to SEK 8.8 billion ($ 1.02 billion) from SEK 8.6 billion a year ago, which beat the average forecast of SEK 7.85 billion, according to Refinitiv estimates.
Securing 5G contracts from all three US telecom companies – Verizon (VZ.N), AT&T (TN) and T-Mobile (TMUS.O) – has helped the company absorb the losses in China.
Total revenues fell by 2% to SEK 56.3 billion, without SEK 58.14 billion as analysts forecast.
($ 1 = 8.6258 Swedish kronor)
Reporting by Supantha Mukherjee, editing by Kim Coghill, Kirsten Donovan, Josephine Mason and Louise Heavens
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