Telecoms equipment maker Ericsson beat quarterly core earnings expectations on Thursday and lifted its market forecast for this year and its sales target for 2020, saying demand for superfast 5G networks was taking off earlier than expected.
5G networks are at the centre of a brewing technology war between United States and China, as they are expected to host critical functions from autonomous vehicles to smart electric grids and military communications, underscoring their importance to national security.
Washington has put Chinese supplier Huawei on a trade blacklist and led a worldwide campaign to convince allies to ban the firm from their 5G networks, alleging its equipment could be used by Beijing for spying – which Huawei has repeatedly denied.
Sweden’s Ericsson, which together with Finland’s Nokia and Huawei sells the bulk of radio access network equipment that is key for 5G mobile services, said it was now targeting sales of 230-240 billion Swedish crowns ($23.5-24.5 billion) in 2020, up from 210-220 billion previously.
“We continue to see strong momentum in our business, based on the strategy to increase our investments for technology leadership, including 5G,” Ericsson CEO Borje Ekholm said in a statement.
“5G is taking off earlier than anticipated”.
Adjusted third-quarter operating earnings rose to 6.5 billion crowns from 3.8 billion a year earlier, corresponding to an 11.4% margin and beating the 5.2 billion mean forecast seen in a Refinitiv poll of analysts.
Still, Ericsson kept its target for an operating margin of more than 10% for 2020, citing short-term pressure from some contracts and higher initial costs for new 5G products.
It changed its 2022 target to 12-14% from more than 12% earlier.
Ericsson said it now expected the Radio Access Network (RAN) equipment market to grow by 5% in 2019, up from July’s forecast for 3% growth.
The company’s shares are down 7% since its second-quarter results in July, when it warned costs related to winning new contracts for its network business would likely hit profit margins in the second half of the year.
Its shares have been strong in the run-up to Thursday’s results, however, rising 7% so far in October.
Credit Suisse said in a research note that Ericsson’s third-quarter results were “better on all metrics”.
While some analysts are expecting Ericsson to benefit from Huawei’s problems, Ekholm said the firm had still not seen any impact on sales from the turmoil surrounding its rival.
“No we don’t. What it has created is uncertainty in the market and perhaps a certain worry amongst equipment suppliers,” he told Reuters. “So if we see anything, it’s some short-term headwind rather than something positive”.
