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How Does Ericsson View the Market in 2017?

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Jan. 20 2017, Updated 7:37 a.m. ET

Mobile equipment market expected to fall in 2017

In November 2016, Ericsson (ERIC) stated that it expects the global mobile telecom (telecommunications) equipment market to fall 10.0%–15.0% YoY (year-over-year), driven by slowing demand. At the Morgan Stanley TMT conference in Barcelona, ERIC’s chief executive Jan Frykhammar said, “We’re cautious about 2017 as a year. In that context we think that the U.S. will be like it has been this year: flattish from a capex environment point of view.”

Competition from Nokia (NOK) and China’s (FXI) Huawei and a sluggish macroeconomic environment could result in a fall in revenue for Ericsson in 2017. Nokia expects its Networks business to fall 2.0% YoY in 2017.

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How does Ericsson view 4Q16?

Weak industry trends will likely mean lower-than-normal seasonal growth for ERIC between 3Q16 and 4Q16. It’ll be interesting to see whether Ericsson is able to match the strong growth it saw in its licensing revenue in 4Q15.

On the company’s 3Q16 earnings call, it said that “a major managed services contract was renewed with reduced scope” in North America, negatively impacting its sales in the short term.

As you can see in the above graph, analysts expected the global real GDP to rise 2.5% in 2015, 2.8% in 2016, and 2.9% in 2017. However, global real GDP growth was 2.4% in 2015, and it’s been revised to 2.1% for 2016 and 2.4% for 2017. The RAN (radio access network) equipment market was also expected to fall 10.0% in 2016 and 2.0% in 2017.

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