Sweden's Ericsson core profit beats forecast, patent fight casts shadow

FILE PHOTO: Ericsson logo is seen at its headquarters in Stockholm, Sweden June 14, 2018. REUTERS/Olof Swahnberg/File Photo

STOCKHOLM (Reuters) -Sweden's Ericsson on Wednesday reported first-quarter core earnings above market estimates as strong 5G equipment sales offset a loss of royalty income due to a patent fight with Samsung Electronics.

The coronavirus crisis has fast-tracked 5G adoption as governments prioritise digital growth, boosting telecom equipment makers such as Ericsson and Finland's Nokia.

Quarterly adjusted operating earnings rose to 5.3 billion Swedish crowns ($627.9 million) from 4.6 billion crowns a year ago, beating the mean forecast of 5.0 billion crowns, according to Refinitiv estimates.

Total revenue, which benefited from bans in several countries on the use of technology from China's Huawei, was 49.8 billion crowns, unchanged from last year due in part to currency headwinds. It missed estimates of 53.42 billion crowns.

A Swedish court on Wednesday will hear arguments in a case filed by Huawei against a ban in Sweden.

Sales at Ericsson's networks unit grew by 15% and adjusted gross margin rose to 42.9% from 40.4%. Revenue was hit by the fight with Samsung over patent licence royalties.

"We are continuing both with the legal track, as well as the negotiation track," Chief Financial Officer Carl Mellander told Reuters, saying it was "hard to predict any sort of firm timeline" for a resolution.

Technology patent disputes can run for years and royalty payments can be recouped depending on the resolution. The last dispute between these two firms was resolved in 2014 after two years.

Patent licensing revenue fell to 0.8 billion crowns in the quarter from 2.5 billion crowns a year earlier. Ericsson previously warned https://www.reuters.com/article/instant-article/idINKBN28L0MX patent revenue would fall by 1 billion-1.5 billion crowns per quarter.

Nokia, which reports results next week, has settled https://www.reuters.com/article/us-nokia-patent-lenovo-idUSKBN2BU0F7 patent disputes with Samsung and Lenovo in the past two months.

Ericsson said it expected the 5G equipment market to develop favourably in 2021 and that it had overcome a global semiconductor shortage affecting a range of industries.

"With proactive and continuous measures for supply chain resilience we have to date been able to manage the global semiconductors shortage situation without impact on our customer deliveries," Chief Executive Borje Ekholm said.

($1 = 8.4404 Swedish crowns)

(Reporting by Supantha Mukherjee and Helena Soderpalm in Stockholm; Editing by Niklas Pollard and Edmund Blair)

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