While China’s 5G development is in full swing, Ericsson, the global communications equipment giant, has continuously delivered very unsatisfactory results. In the third quarter of this year, Ericsson’s sales in China fell by 74% year-on-year; and in the second quarter, sales in China The amount dropped by 63% year-on-year. Affected by the continued decline in revenue in the Chinese market, Ericsson’s global sales also experienced a year-on-year decline for two consecutive quarters.
In October last year, the Swedish government also banned Chinese companies such as Huawei and ZTE from participating in its 5G network construction under the name of “security reasons.” This incident also embarrassed Ericsson’s role in the Chinese market, which is headquartered in Sweden.
Following the previous layoffs at the Nanjing R&D Center, Ericsson CEO Bao Yikang recently stated that starting from the fourth quarter of this year, Ericsson will reorganize its business in China.
This global communications equipment giant, which has been dealing with China for more than a hundred years, can now only rely on layoffs to save itself?
China’s “old friends” cannot escape the haze
In the global market, China can be said to be the country with the greatest efforts to promote 5G deployment.
According to data from the Ministry of Industry and Information Technology, China has built the world’s largest 5G network: As of August this year, the cumulative number of 5G base stations built exceeded one million for the first time, reaching 1.037 million, accounting for more than 70% of the world’s total; domestic 5G in the first 8 monthscell phoneShipments are 168 million units, and 5G terminal connections account for more than 80% of the world’s total.
Judging from the first three quarters of financial reports recently released by the three major domestic telecom operators, the revenue and net profit of the three companies have been achieved under the continuous growth of 5G package users and the new markets and new dividends brought by new technologies such as 5G. A substantial year-on-year growth, out of the previous industry haze.
However, just as the situation is getting better, Ericsson has delivered what can be described as the worst report card in history in the Chinese market.
According to the financial data released by Ericsson, in the second quarter of this year, Ericsson’s sales in China fell by 2.5 billion Swedish kronor (about 1.87 billion yuan) year-on-year, a decrease of 63%; in the third quarter of this year, Ericsson’s sales in China A decrease of 3.6 billion Swedish kronor (approximately 2.69 billion yuan), a year-on-year decrease of 74%.
The industry generally believes that Ericsson’s Waterloo in the Chinese market this year is closely related to the current international situation.
In recent years, the United States has continued to suppress Huawei, ZTE and other Chinese communications equipment companies, directly banning U.S. telecom operators from purchasing network equipment from Huawei and ZTE on the grounds of “national security.” equipment.
In October 2020, the Swedish government suddenly announced that it would prohibit Huawei and ZTE from participating in its 5G construction. The market believes that Sweden’s move may be affected by the US government.
Ericsson has a history of more than 100 years with China. In 1987, China’s first mobile phone system was opened in Guangzhou, and the equipment came from Ericsson. Ericsson has always attached great importance to the Chinese market. According to data released by Ericsson, it has five major R&D centers in China. Ericsson has conducted R&D in China in the past few years. The annual investment exceeds 3 billion yuan.
In the Chinese market, China’s three major operators have maintained a good cooperative relationship with Ericsson. Especially in the 5G era, the Chinese market has also become one of the main markets for Ericsson’s 5G development. By signing 5G contracts with China’s three major telecom operators, Ericsson has further expanded its share of the Chinese 5G market.
However, in the context of Sweden’s rejection of Huawei and ZTE, Ericsson’s market share in the procurement of 5G equipment by China’s three major operators has also changed significantly.
existChina MobileIn the 5G base station procurement list announced in March 2020, according to the number of base stations, Ericsson’s share of the winning bid reached 11.5%; and in July this year, China Mobile’s 5G 700M main equipment bidding, Ericsson’s share was only 2%.
Has the Huawei dividend been exhausted?
In the early years, Ericsson and Nokia were the two most powerful communications equipment giants in the world, and they were the monopolists of communications equipment in the global and Chinese markets.
However, with the rise of Huawei and ZTE, the pattern of the global communications equipment industry has undergone tremendous changes. Research firm IHS Markit report shows that Huawei defeated Ericsson in 2017 and became the world’s largest manufacturer of telecommunications equipment.
However, the US’s suppression of Huawei in recent years has allowed Ericsson to benefit a lot.
Take the number of 5G commercial contracts as an example. In February 2020, Huawei led Ericsson’s 81 contracts with 91 5G commercial contracts; The 5G commercial contract is very difficult. In August 2020, Ericsson announced that its global 5G commercial contracts have reached 100, which also means that it has surpassed Huawei in the number of 5G commercial contracts.
This benefit is also reflected in the financial data.
The financial report data released by Ericsson shows that in 2020, its sales in each quarter have achieved year-on-year growth, and net profit has achieved double-digit year-on-year growth in some quarters. Among them, there are Ericsson’s gains in the Chinese market, and Huawei’s gains in the global market after encountering obstacles. For example, in July 2020, the UK announced that it would stop purchasing Huawei’s 5G equipment. Ericsson took over this market gap.
However, as Ericsson’s share in the Chinese market declines this year, the Huawei dividend that Ericsson enjoys is dying.
According to data from Ericsson’s financial report, Ericsson’s sales in the first quarter of this year ended the growth trend in 2020 and were flat year-on-year in the quarter, while the second and third quarters ushered in a year-on-year decline of 1% and 2%, respectively.
According to Reuters, Ericsson’s Chief Financial Officer Carl Mellander said in an interview that Ericsson’s revenue from the Chinese market as a percentage of global revenue fell from 10%-11% to about 3%, offsetting the pressure on Huawei from the US government. The gains from market gaps left after being forced to withdraw from several countries. Carl Mellander said the decline began in the second quarter and will see a year-on-year loss in the same period next year.
(Although Huawei’s global share has declined, it is still far ahead of Ericsson)
In fact, in the days when Huawei was sanctioned by the United States, Ericsson did not achieve a counterattack in the global telecommunications equipment market.
According to market research companiesDELLThe report on the global telecommunications infrastructure market for the first half of 2021 released by the’Oro Group shows that although Huawei’s market share has declined, it still leads by 28.8%, while Ericsson is 15%.
Disguised layoffs, panic
In the delicate external environment, Ericsson is not unforeseen about the direction of the Chinese market.
In the fourth quarter of 2020 earnings conference call, Ericsson CEO Bao Yikang warned that Sweden’s decision to ban Huawei and ZTE’s 5G equipment may affect Ericsson’s business in China. He also emphasized the freedom of competition in standards and global cooperation. necessity.
At the spring media communication meeting in April this year, Shen Ningshan, Executive Vice President of Ericsson Northeast Asia, also discussed this topic in an interview with the media. He said that since the establishment of Ericsson, it has been actively embracing open global competition. Whether in the Swedish or Chinese market, Ericsson welcomes market competition. Regarding Huawei, he frankly said that it is Ericsson’s competitor in China, but in the process of setting global standards, Ericsson also needs to work closely with Huawei to formulate standards and promote the further development of technology.
However, the external environment is difficult to resist. With the decline in market share in China, Ericsson China has ushered in a difficult time.
In September of this year, Ericsson announced internally that it would spin off the Nanjing R&D center to its partner Tieto, and the handover will take place on November 1, 2021. It is reported that a total of 630 employees were affected in this plan, and many employees questioned that Ericsson’s move was a disguised layoff and tried to defend their rights.
After the release of the third quarter financial report of this year, Ericsson CEO Bao Yikang said that starting from the fourth quarter of this year, Ericsson will reorganize its business in China.
There is no doubt that starting in the fourth quarter of this year, Ericsson will start a new round of layoffs in the Chinese market. An internal employee said that the layoffs may mainly involve marketing, sales and delivery departments, and are directly related to the decline in China’s market share, but the specific layoff ratio is still unknown. “I have been talking about structural adjustments, and people are panicking internally.”
At the autumn media communication meeting in September this year, Zhao Juntao, President of Ericsson China, admitted that the decline in market share in China is indeed a fact, but Ericsson will abide by its long-term investment commitment to China, hoping to continue to make good products and have the opportunity to continue to grow. Market share in China. “If a product does not have an advantage, it will not win the market. You have to start from yourself and start from the factors you can control.” (Zhang Jun)