Pre-commercial 5G network equipment for the Chinese market is weighing Ericsson down to the tune of $108.5 million in the current quarter. The Swedish vendor today reported a write down related to those assets, making good on previous guidance about a profitability decline in the highly competitive Chinese market.

Ericsson’s business in China has grown of late, having inked contracts with the country’s three largest operators — China Mobile, China Unicom, and China Telecom — but margins on the front end of those contracts is “negative due to high initial costs for product introduction,” the company said. 

However, Ericsson said it expects its 5G business in China to achieve “healthy profitability over the life of the contracts.” The challenges facing Ericsson are not unique in the radio access network (RAN) market, but it is outperforming its largest competitors. 

While telecommunications equipment sales declined 4% during the first quarter of 2020, Ericsson’s share of the market held steady at 14% as Huawei, Nokia, and Cisco each saw their share decline 1% during the quarter. ZTE, meanwhile, jumped from 10% to an 11% market share during the quarter, according to Dell'Oro Group. 

The $109 million write down will hit Ericsson’s Networks division during the second quarter of 2020, which closes at the end of this month. Nonetheless, the company is holding firm to financial targets previously set through 2022, and claims that the COVID-19 crisis’ impact on Ericsson’s supply chain has thus far been limited in scope. 

The vendor recently raised its prediction for 5G subscriptions from 2.6 billion to 2.8 billion by 2025, attributing some of those gains to the current calendar year. “We expect quality mobile connectivity to be of even greater importance in the 5G era. 5G offers service providers an opportunity to gain first mover advantage and create a significant network performance gap compared to the competition,” CEO Börje Ekholm said last month during an online event.

The financial hit comes just days after Ericsson began a formal three-year period of oversight by an independent financial compliance monitor. The company agreed to the measure after it admitted to a 17-year long bribery scandal involving high-ranking government officials spanning six countries. It reached a $1.06 billion settlement with the U.S. Department of Justice and U.S. Securities and Exchange Commission in December 2019. 

Ericsson also earlier this month said it has 93 commercial 5G agreements or contracts with network operators and 40 live 5G networks in 22 countries. It ended the first quarter of 2020 with 86 commercial 5G contracts and 29 live 5G networks.