Ericsson posted a first-quarter profit on Wednesday that swept past forecasts due to strong growth in North America and cost cuts, spurring the telecom equipment maker to boost its full-year outlook for the global networks market.
Its shares rose more than 3 percent to a four-year high. Profit beat expectations for a fifth straight quarter, as the Swedish company slashes costs following an industry-wide downturn in the middle of the decade, and as a new cycle of network upgrades kicks in for next-generation 5G equipment. The company counts Huawei as one of its main rivals and some analysts see potential benefits from Western suspicions of the Chinese group after Washington alleged its gear could be used by Beijing for spying.
Ericsson Chief Financial Officer Carl Mellander said the Huawei situation had not yet affected orders but acknowledged security concerns could play a role in customer decisions. "We said earlier that we don't see it in the order books, but generally speaking the competitiveness we now have in our radio portfolio, through all technology investment we have done, matters," Mellander told Reuters.
Huawei has rejected the allegations and launched a lawsuit against the US government. Excluding restructuring charges related to a revamp of its Business Support System unit and one-off items, the operating margin was 7.2 percent. The company has pledged to hit an underlying target of more than 10 percent in 2020. Sales of 5G equipment in North America, the company's biggest market, drove growth, while Europe lagged due partly to a lack of spectrum access, a poor investment climate, and uncertainties related to future vendor market access.
Ericsson said it now expects the Radio Access Network (RAN) equipment market to grow by 3 percent this year, up from a previous forecast for 2 percent growth. Ericsson also warned that probes by the US Securities and Exchange Commission (SEC) and Department of Justice (DOJ) could result in "material financial and other measures".
It previously said it had initially received questions from US authorities in March 2013. The company has not commented on media reports that US authorities were investigating its business practices in Romania and China, but said in October it had dismissed 50 people due to the probe. "We can see now that it is out of the question that we will come out of this with no consequences," Mellander said. "How much and of which nature and when, we really cannot say." Ericsson swung to a quarterly operating profit of 4.9 billion crowns from a 312 million loss a year ago, well above a mean forecast for a 2.8 billion profit in a Reuters poll. Sales rose to 48.9 billion versus a forecast of 48.2 billion.