Historical Stock Chart
2 Months : From May 2019 to Jul 2019
By Parmy Olson
LONDON -- As the U.S. continues its campaign against Huawei Technologies Co., the Chinese telecom-equipment maker's two biggest rivals are battling each other to take advantage.
On Wednesday, Nokia Corp. of Finland and Ericsson AB of Sweden announced they would become the primary providers for Japanese mobile carrier SoftBank Corp.'s network upgrade to 5G, the latest generation of super-fast-mobile networks. It isn't the first time a carrier has snubbed Huawei in favor of its older, nordic competitors.
Ericsson recently won a contract from a Danish carrier to replace Huawei equipment as it starts to upgrade its networks to 5G. Ericsson has said it has won 18 such "equipment swap" contracts, deals to replace a rival's gear with fifth-generation upgrades.
Nokia said it recently replaced some Huawei gear for Vodafone Group PLC in Germany. Out of 37 recent deals for 5G gear, it has won twice as many swaps as Ericsson, according to Nokia. Ericsson said it didn't recognize those numbers, and wouldn't go into contract details.
It isn't clear how many of these swaps overall are coming at Huawei's expense. "We have seen no significant impact on our 5G sales," a spokesman for Huawei said, referring to U.S. government allegations that Huawei gear poses a national-security threat. The spokesman added that Huawei was disappointed to lose Danish telecom company TDC A/S after supplying the carrier for 12 years.
The U.S. pressure on Huawei, though, has ramped up the competition between Ericsson and Nokia to pick up any business that does fall away from the Chinese giant. Obtaining customers from Huawei -- and each other -- is now crucial in solidifying separate turnaround efforts at Nokia and Ericsson, the Nos. 2 and 3 telecom-gear makers by sales, respectively, behind Huawei.
Nokia Chief Executive Rajeev Suri last month referred to the double-edged nature of the U.S. push against Huawei. "Some competitors seek to be more commercially aggressive in the early stages of 5G as some customers reassess their vendors in light of security concerns," he said after reporting first-quarter sales. That competition has created "near-term pressure but longer-term opportunity," he said.
Once on top of the industry, Ericsson and Nokia were laid low over the past decade by fierce competition from Huawei and smaller Chinese rivals. Meanwhile, carriers that had gorged on gear to build 4G -- the mobile-network technology that replaced slower 3G -- tapered off buying new equipment once their buildouts were finished.
Now, carriers and internet providers are snapping up equipment again, this time for 5G.
Ericsson's chief executive, Börje Ekholm, said mobile carriers had a "great opportunity" to earn money from 5G technology that would be "as important as roads and railways....We're quickly moving beyond connecting people to connecting machines and things."
The global market for providing 2G, 3G, 4G and 5G infrastructure is worth about $30 billion in annual sales, excluding services, or 37% of the wider, $81 billion mobile-infrastructure market, according to Dell'Oro, a market-research firm.
The U.S. has used 5G as one of the driving reasons for its steps against Huawei. Officials say the company could be compelled to use its equipment or employees to spy on or disable foreign 5G networks. Huawei says it isn't beholden to Beijing and would never spy for any government. Washington has asked allies to block Huawei from their 5G rollouts.
Last month, Huawei reported a big jump in first-quarter revenue, and said it had signed 40 5G deals around the world. One of those was with Etisalat Group, the state-controlled telecom carrier in the United Arab Emirates, a strong U.S. ally.
Analysts are looking at one particular subset of the telecom-gear industry to gauge any fallout: radio-access networking, or RAN, which includes much of the gear, including base stations and antennas, needed for 5G.
Huawei has been growing quickly in the field. Between 2016 and 2019, Huawei's share of RAN sales outside North America rose between 2 and 3 percentage points, according to Dell'Oro. The research firm didn't provide detailed numbers but said Huawei's RAN market share in that region now is more than both Ericsson and Nokia combined, as the two European companies each slipped about 1 percentage point in the same period.
There is also a new competitor. Samsung Electronics Co. has quickly raised its market share of the radio-access-networking market, according to Dell'Oro.
The stakes are high because such big infrastructure rollouts by carriers come along infrequently, often spaced out over a decade or more, as providers upgrade to the next generation of wireless technology. "They bet their companies," said Thomas Noren, head of 5G commercialization at Ericsson.
The U.S. is a particularly fierce battlefield for Ericsson and Nokia because Huawei has been all but barred from the market since a 2012 congressional report labeled it a national-security risk. Last summer, Nokia nabbed a $3.5 billion 5G contract from T-Mobile US Inc. Earlier this year, U.S. Cellular Corp. gave its 5G business to Ericsson, without disclosing a value.
Last month, Nokia said it was deferring a chunk of expected 5G sales in North America until later in the year. It cited intensifying competition and the "evolving readiness of the 5G ecosystem."
Nokia's network chief, Tommi Uitoo, said Ericsson was using "meaningful lower" prices to win business. U.S. Cellular cited price as a factor in going with Ericsson. So did Italy's Wind Tre SpA, owned by CK Hutchinson Holdings Ltd., which picked Ericsson for its 5G rollout in June 2018.
Ericsson played down any price cuts. The company's Mr. Noren said it wasn't cutting prices, but sometimes absorbing the cost of installing its equipment for a carrier. That has led to thinner margins, Ericsson has said.
Nokia also reported lower margins in the first quarter, blaming the new competition. "It's a marathon rather than a sprint," Mr. Uitoo said.
(END) Dow Jones Newswires
May 29, 2019 10:47 ET (14:47 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.