Ericsson will cut back on China operations after Huawei retaliation

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Swedish multinational networking and telecommunications company Ericsson announced to reduce operations in China after experiencing a significant sales drop in one of its biggest markets because of retaliation related to Sweden’s ban on the Chinese giant Huawei preventing it from selling 5G gear in the country.

The news breaks as the company reported better-than-expected Q3 earnings, spurred by strong sales of 5G equipment in most of the world, offsetting the market share lost in Mainland China and ongoing global supply chain issues.

You win, you lose

Sweden banned Huawei from selling 5G gear in the country a year ago and Ericsson has lost most of its share in the latest round of China’s telecom tenders. The Swedish company’s proportion of revenue in China has dropped from 10-11% to about 3%, according to Chief Financial Officer Carl Mellander.

In an interview, Mellander said that the drop offset profits gained from the Huawei left in many countries after experiencing severe pushback from the former US administration, something the Joe Biden administration has upheld.

Mellander said that the decline started in Q2 and would be shown as a year-on-year loss until the same period of next year.

Retreating after a century

China sales declined by ($418.14 million/3.6 billion Swedish crowns) in the third quarter alone. The company is now planning to cut back on sales and deliveries in the country.

The reduction in China is a significant but small retreat for a company that has been operating in the country for more than 100 years.

Chief Executive Borje Ekholm had vowed last month to double down on efforts to regain the lost market share. Given that it is a political move, few can claim not to know how that kind of thing works.