An Ericsson display of 5G wireless radio antennas at a Mobile World Congress event in the US
An Ericsson display of 5G wireless radio antennas at a Mobile World Congress event in the US. The kit maker is caught in a geopolitical struggle amid US-China tensions © Bloomberg

Ericsson’s sales plunged in China as the Swedish telecoms equipment maker warned it was likely to suffer retaliation due to Sweden banning its Chinese rival Huawei from building 5G networks in the Scandinavian country.

Revenues generated in Asia’s biggest economy in the second quarter fell from SKr4.1bn ($470m) a year ago to SKr1.5bn, causing Ericsson’s overall group sales to drop for the first time in three years.

Chief executive Borje Ekholm warned that the group was likely to gain “materially lower market share” in China in the future as a result of Sweden’s decision last year to bar Huawei and ZTE because of worries about espionage and technology theft.

Ericsson and many of its rivals are caught in the middle of a geopolitical struggle over the future of 5G networks. The US has put pressure on its allies to follow its lead and ban Chinese companies from their telecoms networks, with officials in the administration of former president Donald Trump even floating the idea of buying a stake in Ericsson or Finnish group Nokia, the two main rivals to Huawei.

But Ekholm has been outspoken in his criticism of the Swedish 5G ban, telling the Financial Times last year that it would restrict free competition and trade. The Wallenberg family, big investors in Ericsson and other Swedish blue-chips, have also criticised the decision amid worries that the fallout from the ban could spread to other sectors.

Some analysts have pencilled in no future revenues for Ericsson in China. Ekholm on Friday warned that the Swedish ban on Huawei “might influence market share awards”, many of which are due later this year.

Ericsson showed what it was missing out on by upgrading its forecast for the Chinese telecoms equipment market, saying it would grow by 11 per cent this year, up from a previous estimate of 4 per cent. That would lift global growth to 10 per cent, up from a prior forecast of 3 per cent.

The Swedish group also underscored that it made SKr10bn in revenues in China in the second half of 2020, highlighting the scale of what it could lose.

Its struggles in China came as it reported second-quarter sales down slightly from SKr55.6bn in the same period a year earlier to SKr54.9bn. That missed the average analyst forecast of SKr57.2bn.

Ericsson also disappointed with its earnings as underlying operating profits rose from SKr4.5bn to SKr5.8bn, missing the average analyst forecast of SKr6bn.

Shares in the group dropped 8 per cent in early trading on Friday.

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