Ericsson braced for China 5G hit

Ericsson planned a write-down of assets related to its China business, a move which will see the Swedish vendor hit with costs amounting to SEK1 billion ($108.6 million) in the current quarter.

In a statement, Ericsson said the write down was previously anticipated: it warned in its Q1 results it expected to be hit by a temporary negative gross margin in China.

The company explained the hit was an effect of strengthening its position in China after winning 5G contracts with all three major operators, and it would be hurt by costs related to asset write-downs of pre-commercial product inventory for the market.

It will record the costs in its Networks segment, impacting gross margin.

However, the effect is not expected to be long term, with its overall 5G business expected to have healthy profitability.

“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,” the vendor stated.

Financial targets for 2020 and 2022 remained unchanged

While Huawei and ZTE picked up the majority of 5G contracts from China Mobile, China Unicom and China Telecom, Ericsson was one of the biggest non-domestic winners, securing around 10 per cent of contracts, largely at the expense of European rival Nokia.