Ericsson reported solid earnings on October 17th, driven by strong 5G momentum. Benefiting from early adopters of 5G, the company is gaining market share in North America and Korea, and 5G infrastructure deployments in other regions such as Australia, Japan, China, and Europe could drive growth upside in 2020.

“We see a faster rollout of 5G than we earlier anticipated, driven by the pioneers in North America, Northeast Asia,” mentioned by CEO during the earnings call. The company is seeing a higher potential market for 5G vs 4G due to new applications created by 5G for both consumers and enterprise. Ericsson continues to see a very high increase in the rate of data consumption by end-users, creating a need for operators to invest in 5G (as well as 4G in some areas) to address the stronger demand. As such, Ericsson raised its sales target for 2020 on signs that spending on new 5G networks is speeding up. The company is now targeting sales of 230bn SEK to 240bn SEK next year, buoyed by currency effects and a stronger market for 5G, compared with a previous of 210bn SEK to 220bn SEK.

On the other hand, Nokia reported disappointing earnings last week, driven by a combination of idiosyncratic factors such as product quality, lagging product portfolio, noncompetitive cost structure, etc. It seems to us that Nokia has been losing market shares to competitors (e.g. Ericsson) in the 5G market. The company subsequently revised down earnings guidance and paused the dividend payout. Nokia is running the risk of falling out of the top-tier 5G equipment vendors.