- The AT&T contract that Ericsson won almost a year ago is now in the delivery phase
- That was reflected in Ericsson’s Q3 earnings report, where North America sales grew by 55% year over year
- Ericsson also sees network investments by other large U.S. customers
Ericsson shares were up more than 13% today after the Swedish vendor reported better-than-expected Q3 earnings, thanks in large part to AT&T.
AT&T almost a year ago awarded a $14 billion open Radio Access Network (RAN) contract to Ericsson, and the fruits of that contract are starting to ripen. Ericsson started seeing the impact of the contract late in Q2 and into Q3.
In fact, sales in North America in Q3 increased by 55% compared to a year ago.
“We see signs that the overall market is stabilizing with North America, as an early adopter market, returning to growth,” said Ericsson President and CEO Börje Ekholm in a statement.
Ekholm was asked during the company’s earnings call Tuesday to comment on the network modernization plans at T-Mobile and Verizon. He politely declined.
“That's a very interesting question that I think we will not comment on specifically for the simple reason that it's a competitive market and we should also try to be neutral in any comments about the market,” Ekholm said. “But what I will say is that, and I think we've tried to make that point, that the increase in North America is broader than just one contract.”
Since selecting Ericsson as its open RAN vendor last year, AT&T has been ripping out Nokia gear in markets across the country and replacing it with Ericsson. But it’s not the only customer.
Looking beyond Q3
All three of the major U.S. wireless carriers use Ericsson equipment and even though T-Mobile brags about covering more than 330 million people with 5G, it will continue to add more coverage and capacity, noted Recon Analytics analyst Daryl Schoolar. Both AT&T and Verizon are still expanding their 5G C-band coverage.
“5G Advanced enhancements – while most of those are going to be software – are another area of growth for Ericsson in this market,” he said. “That’s a few pennies in the Ericsson pocket.”
Earl Lum, president of EJL Wireless Research, said Ericsson’s balance sheet is strong as of the end of the third quarter, giving the market something to be optimistic about.
“I think overall, they’re starting to see a recovery” in the U.S., which typically has better margins than other regions, Lum said. “They’re seeing the rewards of their deals, and I think that’s why the market seems to be at least comfortable that they will survive.”
While Ericsson’s customers spent billions deploying 5G, they haven’t seen great returns on those investments. Ekholm said that for the longer term, it’s essential for Ericsson to find new revenue streams for its customers.
One place it’s looking to do that is through network application programming interfaces (APIs). Last month, Ericsson announced a new joint venture with 12 operators whose mission is to sell network APIs on a global scale.
But that new company is still in the works and likely won’t see any revenue generation for the next several years, Schoolar said.
Lum agreed it’s going to take a while. “That’s going to take some time to actually get to a level where they can hopefully monetize that,” he said, noting that it won’t be operational until at least Q1 2025.