STOCKHOLM (Reuters) - Ericsson (ERICb.ST) secured deals with Chinese operators totaling $1.8 billion, easing concerns the Swedish group would be badly stung by capital spending cuts by mobile firms in the world’s third biggest economy.
Ericsson, the world’s biggest mobile network gear maker, signed a $1 billion deal with China Mobile (0941.HK) — the world’s largest mobile carrier — and an $800 million contract with the country’s No. 2 mobile firm, China Unicom (0762.HK).
Ericsson has made similar-sized framework agreements with the two operators in the past few years in China — its second biggest market by sales in 2009 — and analysts said the deal was broadly as expected, though still positive.
“It is a clear sign that the numbers in China are still going quite nicely,” Morten Imsgard, analyst at Sydbank said. “It is still one of the better markets ... and I don’t expect it will slow down any significant amount this year.”
Ericsson made sales in China of some 18.5 billion crowns last year, around 9 percent of the total.
The contracts are also evidence that Ericsson can compete with Chinese vendors such as Huawei HWT.UL which has been gaining market share and in recent quarters pinched contracts on Ericsson’s home turf.
Shares in Ericsson were up 2.0 percent at 75.30 crowns at 1204 GMT, outperforming the wider Stockholm market and the European technology index .SX8P.
Analysts have warned over the effect spending cuts by Chinese mobile operators might have on equipment makers, as the market has been a rare bright spot in an industry squeezed by falling investment in the wake of the global downturn.
China Unicom said last week it planned to slash investment this year to 73.5 billion yuan ($10.8 billion) in 2010 from 112.47 billion last year.
Lars Soderfjell at Alandsbanken said the key to Ericsson’s overall sales in China was how much operators bought over and above the framework agreement.
“Both China Unicom and China Mobile say they are planning for a significantly lower level of investment this year,” he said. “Do I still think that Ericsson’s sales can be lower during 2010 than in 2009? Absolutely.”
Under the deal with China Mobile, Ericsson said it would provide a radio access network this year, drastically boosting capacity.
It will provide China Unicom a faster 3G network with HSPA Evolution technology while also expanding its cooperation with the carrier in the area of IP and broadband.
Editing by Simon Jessop and David Holmes