Ericsson plans to scale back China operations on Huawei backlash, reports supply chain issues

  • Sales in China drop to 3% of total, from 11%
  • CFO says to review mainland China staff and offices
  • Measures come after Sweden bans Huawei from using 5G equipment
  • Sales fall of 3.6 billion crowns in China, total turnover down 2%
  • Equities down 0.3%

STOCKHOLM, Oct. 19 (Reuters) – Sweden’s Ericsson (ERICb.ST) on Tuesday announced plans to cut operations in China after suffering a sharp drop in sales in one of its largest markets due to retaliation from Sweden to ban Chinese Huawei (HWT.UL) from selling 5G hardware in the country.

The news came as the company reported better-than-expected core earnings in the third quarter, boosted by strong sales of 5G equipment in most countries around the world, offsetting a loss of market share in mainland China and a blow to 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 share in the latest rounds of telecommunications tenders in China. .

The proportion of revenue Ericsson derives from China has fallen to around 3% of the total, from 10% to 11%, CFO Carl Mellander said in an interview, offsetting the gains made as Ericsson filled the void. left by Huawei in several countries as it retreated. under pressure from the US government.

Mellander said the decline started in the second quarter and would manifest as a year-over-year loss until the same time next year.

Sales in China fell by 3.6 billion Swedish kronor ($ 418.14 million) in the third quarter alone, and the company now plans to reduce its sales and delivery organization in the country.

The reduction in China marks a small setback for the company that has been present in the country for more than a hundred years. Managing Director Borje Ekholm had promised last month to redouble efforts to regain market share in China. Read more

The Ericsson logo can be seen at its headquarters in Stockholm, Sweden on June 14, 2018. REUTERS / Olof Swahnberg

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Ericsson, a rival of Nokia (NOKIA.HE), also said problems in the global supply chain had started to be felt.

“At the end of the third quarter, we experienced some impact on sales due to supply chain disruptions, and such issues will continue to pose a risk,” CEO Börje Ekholm said in a statement.

The company has been unable to deliver certain hardware to its customers due to a shortage of chips at vendors, coupled with logistics issues, resulting in lower revenues, Mellander said.

The company’s shares edged down and analysts said supply chain constraints could translate into a potential rise for next year as demand remains strong.

Quarterly adjusted operating profit reached 8.8 billion Swedish kronor ($ 1.02 billion), up from 8.6 billion a year ago, beating the average forecast of 7.85 billion, according to estimates by Refinitiv.

Securing 5G contracts from the three US telecommunications companies – Verizon (VZ.N), AT&T (TN) and T-Mobile (TMUS.O) – helped the company absorb the losses in China.

Total revenue fell 2% to NKr 56.3 billion, missing the NKr 58.14 billion predicted by analysts.

($ 1 = 8.6258 Swedish kronor)

Reporting by Supantha Mukherjee, editing by Kim Coghill, Kirsten Donovan, Josephine Mason and Louise Heavens

Our Standards: Thomson Reuters Trust Principles.

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