Why Ericsson Stock Is Tanking Today | The Motley Fool

What happened

Shares of Ericsson (NASDAQ:ERIC) are tanking on Friday, down by 10% as of 11:40 a.m. EDT, after the company reported second-quarter earnings. The results came in below expectations, due in part to weakness in China.

So what

Revenue in the second quarter came in at 54.9 billion Swedish kronor ($632.7 million), which missed the consensus estimate of 57.6 billion SEK. That all resulted in earnings per share of 1.1 SEK ($0.13), compared with the 1.23 SEK per share that analysts were expecting. The telecommunications company, which provides equipment and infrastructure, attributed the shortfall to weak demand in China.

Image source: Getty Images.

Ericsson had previously hoped to capitalize on China’s deployment of 5G technology but acknowledged that it no longer expects to win those contracts. Sweden recently banned 5G equipment purchases from China’s Huawei over national security concerns, with Ericsson getting caught in the crossfire as China retaliates.

Now what

In an interview with Barron’s, CFO Carl Mellander warned that investors should expect Ericsson to have “materially lower market share” going forward. Ericsson will seek to compensate for weakness in China by strengthening its position in other markets, according to the finance chief. On the bright side, the broader radio access network (RAN) market is showing strong signs and is now forecast to grow 10% in 2021, up from a previous expectation of 3%.

Ericsson’s release contrasts to Finnish peer Nokia, which said earlier this week that it expects to boost its full-year outlook.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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