Despite eliminating more than 18,000 employees since it launched its cost-reduction efforts last July, Swedish infrastructure maker Ericsson said it has added 500 engineers to its research and development team to focus primarily on 5G.
During the company’s first quarter earnings call today, CEO Borje Ekholm said that 5G momentum is strong, particularly in North America. He added that the company is seeing good traction with its 4G portfolio of products that support operators as they transition from 4G to 5G.
Ericsson has benefitted from some early 5G operator agreements. The company locked in a multi-year contract with Canada’s Rogers to deploy 5G in several cities. In addition, T-Mobile announced in February that it would be using Ericsson and Nokia gear for its 5G deployment.
The company is also seeing some benefits from Ekholm’s cost-cutting efforts in 2017. It reported revenue of $5.14 billion for the quarter, which is a 9 percent decrease from the $5.66 billion it reported the same quarter the previous year. However, the company also reported a gross margin of 35.9 percent, up from 18.7 percent in first quarter 2017. Earnings per share for the quarter were $0.01.
Ekholm said that the company is seeing a more stable market with growing focus on 5G radio and the network core. And the interest is not just from North America operators. The Ericsson CEO said that China is also moving quickly to 5G. “The 5G development is led by North America and China,” he said, according to the Seeking Alpha transcript of the investor call.
He added that U.S. operators are more interested in mobile broadband applications while China is pursuing more industrial applications.
He noted that most network operators are seeing data traffic on their networks double every 18 to 24 months. And in order to meet that demand, operators have to reduce the cost per gigabit. “Eventually, in order to get the increased efficiency, they are going to go to 5G,” he said.
Ericsson said its ongoing cost savings plan is progressing. The company logged a run-rate of about $1.01 billion at the end of the first quarter compared to a run-rate target of $1.18 billion for mid-2018.
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