The Swedish vendor reported a 74% year-on-year drop in sales in China for Q3, sliding from a 63% drop in Q2
Ever since Sweden banned Huawei and ZTE from its upcoming 5G networks back in October 2020, Ericsson’s future in China has been put under the microscope. Since then, the vendor’s market share in China has collapsed, with sales for Q3 2021 today revealed to have fallen 74% year-on-year to just $150.3 million.
As a result of this continuous decline, Ericsson has now announced that it will be rethinking its approach to the Chinese market, likely including downsizing operations in the near future.
"As a consequence of the loss in sales in China, we have to right-size our sales and delivery organization in China, and that will start in the fourth quarter," said Borge Eckholm, Ericsson’s president and chief executive.
In 2020, China was Ericsson’s second largest market by revenue, but this has since slipped to fourth largest.
"It is quite clear that our market share in mainland China has been reduced," said Eckholm. "This is a consequence or follows the decision Sweden took to exclude Chinese vendors in the build-out of 5G networks in Sweden.”
Sadly for Ericsson, this chain of events has been all too predictable.
When discussions surrounding potentially banning Huawei and ZTE from Sweden’s 5G networks as part of the conditions for the nation’s first 5G spectrum auction, Ericsson itself emerged as an unlikely supporter for the embattled Chinese firms. The company argued that blocking their Chinese rivals would go against the spirit of fair market competition and questioned its legality under
But while this protest might appear magnanimous on the surface, Ericsson surely also had an ulterior motive, knowing that its business in China would suffer the brunt of the ramifications of the Swedish government’s decision.
By July 2021, Ericsson were noting that tenders they expected to win in the second quarter had not gone their way, resulting in a “material lower market share”. In September, they announced plans to close one of their five R&D centres in China, preparing to hand the 630 employees at the centre to Finnish software firm TietoEVRY.
Ericsson reportedly has around 10,000 staff in total in China, but how many will be at risk of further cuts remains to be seen.
There was in fact a glimmer of hope for Ericsson back in August when the vendor won a 3% share of a 5G radio contract from China Telecom and China Unicom, though this remains far below their share in previous years.
However, a major blow was waiting just around the corner, when earlier this month China Mobile awarded an estimated $1 billion 5G contract to Huawei and ZTE, passing over Ericsson and Nokia entirely.
In the face of these losses, it is clear that Ericsson will have to make some immediate changes to keep their Chinese business and finances in balance. Nonetheless, Eckholm seems confident that Ericsson will be in a position to reinvest in their Chinese business and has hopes of winning back at least some of its lost business in the months to come.
"I like to think when you lose a contract, the day after, you start to fight to win it back," he said. "The same is the thing with China. I do believe we have a chance to win back the trust to deliver products in the future.”
How are the geopolitical tensions between East and West affecting the global 5G market? Find out from the experts at this year’s Total Telecom Congress