By Dominic Chopping
STOCKHOLM -- Ericsson AB returned to profit in the first quarter as telecom operators in North America continued to splash out on new fifth-generation networks.
The Swedish telecom-equipment maker is emerging from years of costly restructuring and has bet big on the growing 5G market, where it is battling Finland's Nokia Corp. and China's Huawei Technologies Co.
Its efforts to invest in 5G research, while cutting costs elsewhere, appear to be paying off. Ericsson said Wednesday that it swung to a first-quarter net profit of 2.32 billion Swedish kronor ($250.3 million), compared with a net loss of 837 million kronor for the same period last year. Sales rose 13% to 48.91 billion kronor.
Those figures beat analysts' expectations, and the company's share price rose 4.8% on Wednesday.
"Our strategy, to work with lead customers in lead markets, is generating both 5G business and hands-on experience in 5G rollout and commercialization," Chief Executive Borje Ekholm said.
So far, Ericsson has announced commercial 5G deals with 18 named operators, including with T-Mobile US, Verizon and AT&T. 5G technology promises to supercharge cellphones and ultimately enable driverless cars and internet-controlled factories.
North American operators are eager to lead the transition to 5G and have been ahead of the pack with their investments in the new technology, driving Ericsson's networks sales for several quarters. The company said that trend continued in the first quarter of 2019, with overall sales in North America up 43%.
Ericsson, and rival Nokia, benefit from less competition in the U.S. market, given the government has all but barred Huawei sales over fears its equipment could be commandeered by Chinese authorities to disrupt or spy on communications.
Most parts of Europe are lagging in the transition to the new technology, though, primarily because of a lack of spectrum, poor investment climate and uncertainty about whether some governments will follow the U.S. in barring Huawei.
Nevertheless, Ericsson said Wednesday that it now expects the Radio Access Network (RAN) equipment market to increase by 3% this year, up from a previous forecast for 2% growth.
However, the company did caution that some of its new contracts, while giving it a foothold with key customers, came with lower profit margins. It said those contracts, combined with 5G field trials and large-scale deployments of 5G in parts of Asia this year, would hurt margins in the second quarter. In the first quarter, gross margin was 38.4%, up from 34.2% in the same period last year.
Ericsson also said it had begun settlement discussions with the U.S. Securities and Exchange Commission and Justice Department regarding their yearslong investigations into the company's compliance with the U.S. Foreign Corrupt Practices Act.
It said these talks would likely result in material financial and other measures, although it couldn't estimate the magnitude and impact at this time.
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