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July 26, 2021

Verizon deal underscores sunny outlook for Ericsson

By GlobalData Technology

Ericsson reported mid-year earnings that reflect clear momentum and improving profitability. The positive results were underscored by the announcement of a mammoth new contract with US operator Verizon and a settlement with rival Samsung.

European telecom infrastructure stalwart Ericsson had good news to report in its mid-year earnings announcement in July. Positive themes included strong demand for 5G radios from US and European operators, improving cost structures driving higher gross margins, and an increasing contribution from enterprise network deployments that are steadily becoming a greater share of company revenue and focus.

Ericsson recorded impressive double-digit organic growth from its Networks unit in Q221, as operator 5G demand in all of its markets except China remained strong. Ericsson’s radio prospects appear bright, thanks most recently to an $8.3 billion, five-year contract the company signed with Verizon in July. The deal represents Ericsson’s largest ever and is a strong indication that the company’s restructuring initiatives of the past four years are resonating with customers.

China operations cast a cloud for Ericsson but Samsung settlement is a plus

One dark cloud for Ericsson was the performance of its Chinese operations, which generated just 3% of company sales in Q2 2021 compared to 9% in Q2 2020. Ericsson asserts that its loss of Chinese market share is directly related to the decision of regulators in its home country to exclude Chinese vendors from Swedish 5G networks.

Meanwhile, Ericsson has indicated it is prepared to take its core strengths and pivot more aggressively into the enterprise segment, where some of its traditional rivals, notably Nokia, have devoted an increased focus recently. Ericsson expects to mine the 20-30% annual market it sees in enterprise, with opportunities in areas such as smart manufacturing, remote port and airport operations, and safety management.

Ericsson also announced it has settled a longstanding intellectual property dispute with rival Samsung in May, a settlement that should result in them seeing ongoing royalty payments from Samsung in addition to retroactive payments for Samsung’s use of Ericsson’s intellectual property prior to the settlement.

The deal puts to rest all patent disputes between Ericsson and Samsung, some of which extend back as far as 2012. Ericsson claims an IP portfolio of more than 57,000 patents that are increasingly focused on 5G.

The settlement with Samsung is particularly sweet as Samsung scored a $6.6 billion deal with Verizon for 5G gear last October. As a result, not only will Ericsson benefit from the $8.3 billion Verizon contract it announced for itself in July; it should also see a small benefit in the form of royalty payments as Samsung carries out its deployment at Verizon as well.

Verdict deals analysis methodology

This analysis considers only announced and completed artificial intelligence deals from the GlobalData financial deals database and excludes all terminated and rumoured deals. Country and industry are defined according to the headquarters and dominant industry of the target firm. The term ‘acquisition’ refers to both completed deals and those in the bidding stage.

GlobalData tracks real-time data concerning all merger and acquisition, private equity/venture capital and asset transaction activity around the world from thousands of company websites and other reliable sources.

More in-depth reports and analysis on all reported deals are available for subscribers to GlobalData’s deals database.

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