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What happened
Actions of Ericsson (NASDAQ: ERIC) collapsed Friday, down 10% at 11:40 a.m. EDT, after the company released its second-quarter results. Results were lower than expected, in part due to weakness in China.
So what
Second-quarter revenue was SEK 54.9 billion ($ 632.7 million), which missed the consensus estimate of SEK 57.6 billion. All of this translated into earnings per share of SEK 1.1 ($ 0.13), compared to SEK 1.23 per share that analysts were expecting. The telecommunications company, which provides equipment and infrastructure, attributed the shortfall to weak demand in China.
Image source: Getty Images.
Ericsson had previously hoped to capitalize on China’s rollout of 5G technology, but admitted it no longer expected to win those contracts. Sweden recently banned purchases of 5G equipment from China’s Huawei on national security grounds, with Ericsson caught in the crossfire as China retaliates.
Now what
In an interview with BarronCFO Carl Mellander warned that investors should expect Ericsson to have “significantly less market share” in the future. Ericsson will seek to offset weakness in China by strengthening its position in other markets, according to the CFO. On the bright side, the broader Radio Access Network (RAN) market is showing strong signs and is now expected to grow 10% in 2021, compared to a previous forecast of 3%.
Ericsson’s exit contrasts with that of its Finnish counterpart Nokia, who said earlier this week that he plans to improve his outlook for the full year.
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