Ericsson to lose over $100 million in Q2 due to the high initial cost of China’s 5G business

The development of 5G network is now in full gear and Chinese manufacturers are at the helm of 5G affairs. Globally, we have the likes of Huawei, Ericsson, and Nokia leading the race to 5G finish line. However, as 5G development proceeds, there is a significant change in some parameters, especially price. According to a recent report, Swedish telecommunications giant, Ericsson, expects to lose much money due to this fluctuation.

Ericsson 5G

According to the company, due to the write-down of assets related to Chinese business, the company will record a huge loss. Its first-quarter performance will be ok but its second-quarter loss will exceed 1 billion Swedish kronor (about $109 million US dollars).

Ericsson will expand its 5G business in key markets

Ericsson said in the statement…”Overall, Ericsson’s 5G business in China is expected to achieve healthy profits during the contract period. However, due to the high initial cost of new products, the profit margin in the second quarter of 2020 will probably be negative”.

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Nevertheless, this does not affect Ericsson in a very negative way. For the company, these expenditures are part of its overall strategy to expand its business in key 5G markets. While announcing the news of asset write-downs, the company also said that it has reached a cooperation agreement with China’s three major operators. This means that it has an understanding with China Unicom, China Telecom, and China Mobile.

Analysts estimate that, as 5G technology becomes popular worldwide, Ericsson’s revenue will increase by 3-4% this year. The company continues to adhere to its expected financial goals for 2020 through 2022. Ericsson said that the write-down is related to the pre-market inventory of products for the Chinese market. In addition its network department will announce the write-down cost in the second quarter.

The company said: “Although the deployment of 5G in China will continue to dilute the gross profit margin of the network sector in the short term, it is expected that from the second half of 2020, it will make a positive contribution to gross profit margin and operating income…”

Well, Ericsson has a level playing ground in any market it attempts to enter. The situation is not the same as its major competitor, Huawei. For starters, the US and its allies will not use Huawei’s equipment at all. Furthermore, many developed countries will not use Huawei’s equipment in their core 5G construction. The reason for this is simple. The US thinks that Huawei’s 5G is a loophole for the Chinese government to spy on other countries.

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