What’s Going On Here?Ericsson reported better-than-expected earnings on Friday thanks to a particularly successful – and… wait… suspiciously coronavirus-adjacent – 5G rollout. What Does This Mean?There’s been a rush to upgrade mobile networks to new, faster 5G technology lately, which has turned Ericsson’s mobile networking equipment into the hot ticket about town. Throw in the business it’s poaching off Nokia and Huawei, and you’ve got the recipe for expectation-busting results. It’s even earning more from every sale too: the company reported a jump in its profit margin, hitting its goal two years early.
Still, the company didn’t let itself get carried away: it opted not to up its forecasts for 2022. That’s grated on at least one activist investor, which said the company should aim higher after nailing last quarter. So now it might not matter if Ericsson beats its targets: investors like the activist will sell off their shares if it falls short of their own expectations. Why Should I Care?Zooming in: Politics and business don’t mix.
Maybe Ericsson’s right to be cautious. See, Sweden’s banned Chinese companies from building 5G networks, and those political restrictions – along with plenty of others – are hampering rival Huawei. That’s good news for Ericsson in the short term, sure, but there’s no guarantee that China – which makes up 8% of the company’s sales – won’t retaliate in kind…
The bigger picture: Europe might be wasting its opportunity.
5G networks are seen as critical infrastructure by most governments, and key to modernizing factories, transport, and healthcare. But new research out late last week showed that only a quarter of Europeans could connect to a 5G network as of September last year. That’s up from the 13% of users in 2019, but a long way off the 76% of 5G-connected Americans (tweet this). As for why, it’s as simple as it is complicated: Europe’s so fragmented and its regulations so inconsistent that the return on 5G investments is a lot lower. | 