Ericsson CEO Borje Ekholm said on his company’s Q1 results call that the company needed to be a bit more active to build a “western ecosystem” in its component supplier base, as the industry faces uncertainty over future tariffs.
Answering a question about the potential impact of the USA’s changing tariff landscape, Ekholm said the company had already invested over the years to broaden its ecosystem of suppliers of components that go into the communication products that it manufactures.
“That probably needs to be a bit more active, to build let’s call it a western ecosystem in those components.”
Ekholm continued later, “What gives rise to tariffs are components and site material, those are the flows we need to work on. To create a western ecosystem in these, that’s going to take some time, (but) that’s what really gives rise to the tariffs.”
Re-balancing or re-locating the manufacturing base is of course a supposed goal of the tariff hawks, so Ekholm’s words will go down well in those circles. Ekolm recently came under fire from at least two major investors, according to reports, mainly as a result of financial performance and the write-offs due to the Vonage acquisition. But those reports also state that some of the dissatisfaction stems from Ericsson’s seeming acquiescence with the US government’s current anti-DEI policing drive, donations to Trump’s campaign, and comments about relocating the HQ to the USA. Ekholm’s comments on creating a “Western ecosystem” for components could also be read as a nod to the policy priorities of the US government, although it is also a nod to reality and the need not to become too reliant on one area of the world for manufacturing, especially in a fractious political environment.
Ericsson’s CFO Lars Sandstrom said in terms of manufacturing, the company has the capability to shift production volumes between North and South America, Europe and Asia, although such changes would not be quick. The company had also built up some inventory in Q1 to have material in place to “handle a bit the situation.” Shifting production volume, of course, doesn’t change tariff situation on component flows, as Ekholm pointed out. And fostering a western ecosystem for the sorts of parts and products that go into its base station and other products will also not be a quick game.
In the meantime, while the tariff situation remains in flux, they look likely to continue to bite. At the moment, under current rules, the company attributed a 1 per cent point impact on margin due to tariffs for its Q1, but expects that could widen in Q2 “if tariff proposals remain the same”.
“Our strategy is working”
Away from tariffs, Ekholm mounted a defence of Ericsson’s strategy, as the company saw network sales increase 6% year on year (3% in organic terms, excluding currency benefits). Sales in Cloud, Software and Services unit were stable, with the Unit reporting its first positive quarter, despite a slowdown in Services revenues.
The plan for Ericsson is to enable operators to build programmable network infrastructure that they can then monetise better via differentiated connectivity and Network APIs. Enabling that involves a wide rollout of mid-band to support deployment of 5G Standalone (SA), which brings with it the capability create more differentiated connectivity offerings. Ekholm pointed out that only around a quarter to a fifth of operators have deployed 5G SA, and that only a third of sites in Europe, as an example, were prepared for mid-band. That leaves significant room for growth, when the operators decide the time for investment is right.
“I can’t tell you this is the way it is going to pan out… but I am rather confident the world is going to migrate to more build out, more capacity and more SA as we move along in the year,” he said.
A second enabler for this vision is providing access to Network APIs on a commercial basis. Ericsson has rolled its API platform into industry JV Aduna, which is starting to generate its first revenues, according to the CEO. The company’s write downs on its acquisition of platform provider Vonage have, according to reports, created a rift with some investors. That means that signs of momentum in the programmable, network API space, are strategically important for Ericsson, as it sees that as underpinning telcos’ future ability to spend and invest further. The three major US operators have all committed to providing an anti-fraud API, Ekholm said. That’s relevant because where US operators lead, others tend to follow, he said – not just on APIs but in the network technology also.
“There is a growing customer interest in programmable networks, and many need to invest to be competitive at current data traffic levels. The US recovery in investment gives optimism for other markets, although ultimately the exact timing of investments is in the hands of our customers.
“In short, our strategy is working. Our momentum is gaining traction. High performing programmable networks that enable differentiated connectivity are the future. This will allow our customers to increase monetisation of their network investments and create new growth areas for us.”
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