Ericsson: China's market will have scale advantages of strategic importance

C114 News (June 8, Beijing time) (Yue Ming) Ericsson's official website released a news announcement today that Ericsson has expanded its market share in China by signing 5G contracts with China's three major telecommunications operators. The enhanced market position is of strategic importance to Ericsson because it will generate scale advantages and strengthen Ericsson’s position in China, the world’s largest 5G market.

Ericsson said that overall, the company's 5G business in China is expected to maintain good profitability during the contract period. However, due to the high initial cost of new products, it is expected that the profit margin of China's 5G contracts in the second quarter of 2020 will be affected.

In the financial report for the first quarter of 2020, Ericsson pointed out that the increase in the share of strategic contracts is expected to have a negative impact on the profitability of the second quarter of 2020, mainly due to the low gross profit margin of the Chinese market. In addition, the second quarter will be affected by the cost of approximately 1 billion Swedish kronor (US$108.8 million) related to the write-down of pre-commercial product inventory assets in the Chinese market. This part of the cost will be reported in the network department, thus affecting the gross profit margin.

Although China's 5G deployment will continue to dilute the gross profit margin of the network sector in the short term, it is expected that from the second half of 2020, China's 5G business will have a positive impact on gross profit margin and operating income, and with time, it is expected to be Have healthy profitability within the contract period.

Ericsson said that based on the current situation, the company continues to maintain its financial goals for 2020 and 2022.