Ericsson shares plunge on China woes

It’s official: Ericsson is being punished by China for Sweden’s decision to ban Huawei. Otherwise thing’s are looking OK for the kit vendor.

Ericsson’s net sales fell 1% year-on-year buy were up 8% when adjusted for adjustments that once more worked in Ericsson’s favour. The reason for this was a sales decline of SEK 2.5 billion in mainland China. If those had remained flat Ericsson’s overall net sales would have been up 3% so China accounted for a 4 percentage-point swing in the quarter. Ericsson’s shares were down 8% at time of writing.

“Networks sales grew organically by 11%, despite lower volumes from delayed 5G deployment in Mainland China,” said Ericsson CEO Börje Ekholm. “This growth reflects the continued high activity levels in most markets. The North East Asia market outside Mainland China saw strong growth in 5G volumes.”

It’s not clear what ‘delayed 5G deployment’ means but it seems likely that even the Chinese business Ericsson assumed it already had in the bag after the big MNOs announced the winners of their tender process has diminished. If that is the case surely the only plausible reason can be the Chinese Communist Party leaning on those operators in order to punish Sweden by proxy. On the analyst call Ekholm also essentially threw in the towel on winning much future business there too.

As you can see from the charts above, things are looking fine elsewhere. On top of that Ericsson announced a big deal win with Verizon in the US just before the earnings, perhaps timed to take the sting out of the China news. Verizon is going to spend $8.3 billion with Ericsson over several years for a broad range of 5G kit and services.

“This is a significant strategic partnership for both companies and what we’re most excited about is bringing the benefits of 5G to U.S. consumers, enterprises and the public sector,” said Niklas Heuveldop, President and Head of Ericsson North America. “We’re looking forward to working with Verizon to leverage solutions like Cloud RAN and our Street Macro, adding depth and versatility to 5G network rollouts across the U.S.”

“With this new agreement, we will be able to continue driving innovation and widespread adoption of 5G,” says Kyle Malady, CTO for Verizon. “We are pleased to continue this work through our long-standing relationship with Ericsson.” As this canned quote indicates, Verizon probably wasn’t that bothered about issuing a press release on the matter but went along with it as a favour to Ericsson.

This is some of the strongest evidence yet of the full Balkanisation taking place in the telecoms and broader tech industry. China and the US are in a race to become as autonomous as possible when it comes to technology and manufacturing and everyone else is collateral damage. This is good news for domestic companies as well as regions, such as Africa, they both seek to bribe into allegiance. It’s bad news for globalisation, the free market and progress.