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Ericsson hit by higher 5G costs and weaker US market

Ericsson hit by higher 5G costs and weaker US market

STOCKHOLM, Jan 24: Sweden’s Ericsson reported a smaller-than-expected rise in fourth-quarter core earnings on Friday and said higher costs would spill over into 2020 as the telecoms equipment maker looks to exploit its leading position in super-fast 5G networks, reports Reuters. Its shares fell more than 6 per cent in early trading. After a number of lean years, Ericsson has been boosted by the roll-out of 5G, particularly in the United States. But while 5G has helped sales, it has increased costs. Ericsson has also opted to take on strategically important clients to gain market share, betting a hit on margins in the short term will help to deliver longer-term profitability. The company recently bought the antenna and filter business of Germany’s Kathrein to boost its 5G portfolio and said costs and investments related to the deal would weigh on margins through 2020. Increased investments in digitalization and more spending on compliance - after a $1 billion payment to resolve probes by US authorities into corruption - are also expected to mean somewhat higher operating costs in 2020. Ericsson shares were down 6.1 percent to 79.44 Swedish crowns at 0840 GMT, underpeforming the STOXX Europe 600 Technology Index .SX8P, which was up 1.2 per cent. Nevertheless, CEO Borje Ekholm said Ericsson was on track to deliver on its 2020 targets of an adjusted operating margin of more than 10 per cent and sales of 230 to 240 billion Swedish crowns. Ericsson is fighting rivals Nokia and Huawei to take the lead in the roll out of 5G networks, which are expected to host critical functions from driverless vehicles to smart electric grids and military communications. That has led the United States to blacklist Huawei and launch a worldwide campaign to try to persuade allies to ban the Chinese firm from their 5G networks, alleging its equipment could be used by Beijing for spying - which Huawei denies.

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