Breakingviews - Ericsson’s upbeat 5G forecasts still too cautious

Fiber lines from a newly installed 5G antenna system made by Ericsson for AT&T's 5G wireless network are shown on the roof of a building in downtown San Diego, California, U.S., April 23, 2019.

LONDON (Reuters Breakingviews) - Given its importance to 5G, Ericsson has major self-confidence issues. The $30 billion Swedish firm has added 10% to its 2020 sales forecasts for the superfast mobile kit that will supposedly bring the ‘internet of things’ to life. With Chinese market leader Huawei weighed down by U.S. President Donald Trump, that looks overly cautious.

As with Scandinavian peer Nokia, the last two decades have been dismal for Ericsson investors, who have had to watch the likes of Apple and Samsung Electronics steamroll the mobile handset market. Hence their delight at Thursday’s snippets of good news. Adjusted third quarter operating profit almost doubled to 6.5 billion Swedish crowns ($665 million) on the back of 57 billion crowns of revenue – a 6% increase on a year ago, mainly due to phone companies wanting 5G networks quicker. Yet even after a 7% jump in its shares, the company is only worth a tenth of what it was at the turn of the century.

Regaining such heights is of course unlikely. But there are signs that Chief Executive Borje Ekholm has turned things round at a company which has a history of missed targets. Huawei captured 31% of the global mobile infrastructure market last year, only narrowly ahead of Ericsson’s 27%, according to IHS Markit. Nokia, also valued at nearly $30 billion, is struggling to keep up, on 22%.

On the basis of that carve-up, and industry body GSMA Intelligence’s prediction of telecoms firms spending $104 billion on 5G-ready kit next year, Ericsson’s 2020 sales could be as much as $28 billion. That’s nearly 20% more than Ekholm’s revised sales target.

And there two good reasons to think Ericsson may gain market share. The first is Trump’s attempts to shut out Huawei because of information security concerns. Ericsson also appears to have made smart technology choices, focusing more than Nokia on the radio antennae end of the 5G network.

In turn that could make it a decent fit with $197 billion Cisco Systems - which operates the networks that underpin mobile infrastructure - should the latter’s shareholders agree with the White House on the need for a U.S. 5G champion. For Cisco, with its $12 billion cash pile and $19 billion of EBITDA last year, Ericsson - even after Thursday’s bump – would be little more than a tasty morsel.


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