Ericsson Touts China 5G
Deals - Writes Down Assets
June 8, 2020
previously announced 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.
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
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