Why Ericsson Is Doubling Down On The U.S. Market

Telecom equipment major Ericsson (NASDAQ:ERIC) is turning around its Networking business steadily, posting market share gains driven by stronger demand in the United States, preparations for the commercial roll-out of 5G technology and a slightly more favorable product mix. During Q2 2018, sales from the company’s Networking division grew by about 2% year-over-year (FX adjusted) to SEK 32.4 billion ($3.65 billion), and the trend is likely to pick up further going forward. Below, we take a look at how the company is faring in the United States.

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Why The U.S. Market Is Increasingly Important To Ericsson 

During the most recent quarter, the North American market accounted for about 31.2% of Ericsson’s sales, with the U.S alone accounting for about a quarter of revenues. Per market research firm Dell’Oro Group, Ericsson is expanding its lead over Nokia in the U.S. Radio Access Network (RAN) equipment.  Although Nokia led the U.S. RAN market in 2016, Ericsson took over as the market leader in 2017, expanding its share by about 3% over the first half of 2018. The deployment of 5G is expected to be the next big driver of network spending globally, and North America is at the forefront of this upgrade cycle, with major carriers expected to commence commercial roll-outs later this year. While analysts remain skeptical if 5G spending will reach levels seen at the peak of the 4G deployments in 2015, as the use cases and business cases for the technology still need to be ironed out, scoring early wins is crucial for networking companies as the technology could have a relatively long life cycle. Last year, Ericsson won a contract with Verizon to supply equipment for its 5G launch.

What Ericsson Is Doing To Capitalize On The U.S. Market

The company recently announced it will double down on its R&D efforts in the U.S., hiring about 400 engineers to bolster its product development efforts, while also beginning to do some manufacturing in the country. The company will produce 5G products including 5G radios in the U.S. via a partnership with Jabil, a manufacturing services company based in Florida, with the first products expected to be available before 2019. The move to manufacture in the U.S. could help the company hedge potential impacts of the trade disputes the U.S. is having with other countries. Moreover, Ericsson has also been deploying a greater mix of its Ericsson Radio System – an end-to-end radio modular and scalable network portfolio. This accounted for 84% of the company’s radio sales year-to-date. The ERS system supports 5G capability through remote software installation, making it 5G-ready.

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