- Ericsson has strengthened its market share in China by winning 5G contracts with all three
major operators
- The overall 5G business in China is expected to have a healthy
profitability and is in line with our plans
- In line with the planning assumptions included in the Q1 2020
earnings report, initial gross margin of the 5G contracts in
China is negative due to high
initial costs for product introduction
- In addition, Q2 2020 will be impacted by SEK 1 b. in costs related to asset write-downs of
pre-commercial product inventory for the Chinese market
- Group financial targets for 2020 and 2022 remain unchanged
STOCKHOLM, June 8, 2020 /PRNewswire/ -- As previously
announced Ericsson (NASDAQ: ERIC) has increased its footprint in
China through 5G contract awards
from all three major operators in China. The strengthened market position is
strategically important for Ericsson as this will generate scale
advantages and strengthen Ericsson's position in the world's
largest 5G market, which is expected to be an important driver of
critical future requirements and new feature developments.
Overall, Ericsson's 5G business in China is expected to have healthy
profitability over the life of the contracts. However, the margins
during the second quarter of 2020 are expected to be negative due
to high initial costs for new products.
In the Q1 2020 earnings report we communicated that an
increasing share of strategic contracts was expected to weigh
negatively on profitability in the second quarter 2020 primarily
driven by temporary negative gross margin in China. In addition, the second quarter will be
impacted by a cost of around SEK 1 b.
related to asset write-downs of pre-commercial product inventory
for the Chinese market. The cost will be reported in segment
Networks, impacting gross margin.
While the deployment of 5G in China will continue to be dilutive to Segment
Networks gross margin short-term, it is expected to contribute
positively to gross and operating income from the second half of
2020 and in line with the business plan be profitable over
time.
With current visibility we maintain the financial targets for
2020 and 2022.
NOTES TO EDITORS:
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About Ericsson
Ericsson enables communications service providers to capture the
full value of connectivity. The company's portfolio spans Networks,
Digital Services, Managed Services, and Emerging Business and is
designed to help our customers go digital, increase efficiency and
find new revenue streams. Ericsson's investments in innovation have
delivered the benefits of telephony and mobile broadband to
billions of people around the world. The Ericsson stock is listed
on Nasdaq Stockholm and on Nasdaq New York. www.ericsson.com
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Ericsson strengthens
its position in China and writes down assets
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