Ericsson posted modest but, more importantly, positive financial gains during the second quarter of 2020. The stability amid an unabating global pandemic showcases the Swedish vendor’s ability to weather widespread uncertainty.

The company also said it remains confident in its ability to hit previously disclosed financial targets for 2020 and 2022. Ericsson previously warned that Q2 was “likely to be a tad softer than normal” due to uncertainty induced by the COVID-19 crisis.

While sales of legacy equipment are in decline, Ericsson reported a strong demand for its cloud-native and 5G portfolio, including multiple large customer wins on the 5G core.

“We've been impacted by COVID-19 and related market uncertainty, and we have also seen a decline in our legacy portfolio. However, we see a strong demand for our cloud-native and 5G core portfolio,” CEO Börje Ekholm said during the earnings call, according to a Seeking Alpha transcript. 

5G network deployments riding on Ericsson equipment jumped 86% from the previous quarter. “We now have 99 commercial 5G contracts and 54 live 5G networks performing across 27 countries,” Ekholm said. Ericsson closed the previous quarter with 86 commercial 5G contracts and 29 live 5G networks, and ended 2019 with 78 commercial 5G agreements and 24 live 5G contracts.

Ericsson’s results were primarily driven by network equipment sales, which grew 5% year-over-year to $4.41 billion during the quarter. Digital services declined 5% to $950 million and managed services slipped 12% to $620 million during the same period. 

As the market progression to 5G evolves, Ericsson is targeting multiple opportunities and increasing research and development spending on digital services but allocating the bulk of that to the 5G core, Ekholm explained. Increased investment will also flow to areas like business support systems (BSS) for 5G billing but “the biggest part is in the 5G core,” he said. 

Ericsson is also benefiting from a strengthened market position in China after landing contracts with all of the country’s major operators, Ekholm said. The company last month warned investors that it would be taking a $108.5 million write down related to pre-commercial 5G network equipment related to those activities, but reiterated confidence that it will achieve profitability in China through the duration of those contracts.

Ekholm once again called out Europe for “rapidly falling behind in the digital infrastructure,” noting that the continent is still “behind in 4G penetration” by an average of two to three years. “That has led to a lot of loss of economic value in Europe,” he said. 

“If we are going to repeat that mistake in Europe, I think the European economy has a problem,” Ekholm said, adding that 5G will drive enterprise applications in health care, logistics, and utility services. Seeking out a killer app for 5G at this stage is an exercise in futility, he said earlier this month during a presentation at the 2020 GTI Summit, but applications that run on top of the network are where 5G’s greatest value will be derived. 

Pressed to respond to the U.K. government’s decision earlier this week to ban Huawei equipment in its networks, Ekholm said the key is to remove uncertainty. “What we have had for a period of time now is very uncertain — who is approved, who’s not approved, what’s going to happen, what’s not going to happen?” he said. “That has created an environment for our customers that are not friendly for investments.” 

Ericsson’s market share in Europe is a “touch north of 30%,” he said, adding that the vendor experienced growth in the market during Q2, but only due to market share gains, not the general market at large. 

The vendor also reaffirmed its support of open radio access network (RAN) principles, but framed the opportunity as more long term and only when applied to applications that don’t require high performance. “For the high-performance applications today, we do not see [open RAN] as a way to speed up the rollout” of 5G, Ekholm said, adding that most operators are focused on deploying 5G as quickly as possible. “It’s rather a way to slow down right now. … When [open RAN] is ready, we’re going to be there.”

Ericsson banked $290 million in net income on $6.15 billion in revenue during the quarter, representing a year-over-year sales increase of 1% and a 40% increase in profit.