Shares of Ericsson are down more than 7% in pre-market trading after higher costs hurt the company’s bottom line for the last quarter.
Reporting on its fourth-quarter 2019 earnings results last night, the Swedish telecoms giant indicated strong growth in its ever-expanding 5G rollout operations, citing 78 commercial 5G agreements with unique operators and 24 live 5G networks on four continents.
However, the company’s finances were less than impressive for investors, with management blaming acquisition, investment, and security costs for a hit to operating income.
What does this mean for Ericsson investors?
While Ericsson (NASDAQ: ERIC) looks to be the best play for a 5G future out there at a minute, the roll-out of the new network standard isn’t cheap. The company recently bought the German company Kathrein — an antenna manufacturer — in order to boost its 5G portfolio, as well as putting high-levels of investment into security measures and, surprisingly, a $1 billion payment to resolve probes by U.S. authorities into corruption.
Ultimately, what appears to be a disappointing report such is, in reality, a case of short-term investment into a long-term future. Indeed, CEO Borje Ekholm said Ericsson was still on track to deliver on its 2020 targets of operating margins exceeding 10% and sales of between 230 – 240 billion Swedish crowns.
With the certainty of 5G becoming ubiquitous in the next decade and high-profile competitors like Nokia and Huawei looking for their slice of the pie, it can only be good news that Ericsson is investing heavily in its future now.
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