Ericsson warns of fall in 5G gear demand

Ericsson said it expects a further decline in 5G gear demand from mobile operators this year, also in key growth market India, after beating fourth-quarter operating profit expectations on Tuesday helped by software sales.

Telecoms equipment suppliers are expecting a challenging 2024 as 5G equipment sales —a key source of revenue — are slowing in North America, while India, a high growth market, is also set for a slowdown.

“We expect the current market uncertainties to prevail into 2024 with a further decline of the RAN [Radio Access Network] market outside China as our customers remain cautious and the investment pace is normalising in India,” CEO Börje Ekholm said in a statement.

After a few years of high demand for 5G equipment, buying by telecom providers slowed last year, prompting firms such as Ericsson and Nokia to lay off thousands of employees.

The company could look at further cost cuts this year and that could include layoffs, CFO Carl Mellander said.

The company has not yet identified a specific number of headcount or billions set to be taken out, he said.

Operating profit excluding restructuring charges fell to 7.37billion krona from 8.08-billion krona a year earlier, but topped the 6.92-billion krona expected by analysts in an LSEG poll, while net sales fell 16% in the quarter and missed estimates.

Ericsson’s share price was down 0.3% in midmorning on Tuesday after falling as much as 4.2% after results were posted.

Jefferies analysts acknowledged the sales “weakness” as operators spend less, but underlined a “healthy improvement” in margins. They said they expect profitability to continue improving with cost cuts.

Ericsson’s Ebit margin excluding restructuring charges rose to 10.3% from 9.4%, due mostly to higher-margin software sales and lower sales of 5G equipment in lower-margin markets such as India.

Ericsson should start seeing a boost in the second half of 2024 from its $14bn deal with AT&T, which it won over rival Nokia and which involves building a network with new cost-cutting technology called Open-RAN.

“There is a land grab right now in Open-RAN ... but it is a nascent technology yet to be proven,” analyst Paolo Pescatore at PP Foresight told Reuters.

He said that Ericsson’s results were “disappointing” and that “lots of work needs to be done to get Ericsson back on track”.

The company appointed Lars Sandstrom on Tuesday as CFO, replacing long-time company veteran Carl Mellander.