Ericsson deftly buttressed bad news with good as it reported financial results for the second quarter of 2021. The radio access network (RAN) vendor’s outlook worsened in China during the quarter, but it also just signed an $8.3 billion deal with Verizon that CEO Börje Ekholm called “the largest contract in the history of Ericsson.”

Amid declining relations in China, Ericsson did what millions of broken hearted have done before — it sought and received reassurance from a longtime friend. 

Investors didn’t fall for it though. It appears no amount of good news in Ericsson’s largest markets would offset a $288 million year-over-year sales decline in mainland China, a 60% drop, and a $34 million write down of pre-commercial equipment for the Chinese market. Ericsson stock slipped nearly 11% on the news. 

Ericsson’s inability to gain traction in China, the world’s largest mobile market, will hinder growth opportunities, and that’s what investors care about. The contract with Verizon, albeit massive, was expected. China represents a potential path for growth beyond its long-held footprints elsewhere.

Once those highs and lows were out of the way, Ekholm boasted that Ericsson equipment and software powers 93 live 5G networks and said he expects the vendor to benefit from increased global spending on 5G telecom infrastructure equipment. Dell’Oro Group last month projected the market remains on pace to jump up to 10% this year, generating as much as $100 billion in total revenue.

“We see the North American market moving very fast with a strong demand for 5G and it will be a key opportunity now as the operators are building out mid-band spectrum that will be lit up at the end of the year,” Ekholm said, according to a Seeking Alpha transcript. “Mid-band spectrum and buildout in mid-band is critical to give the end user experience that you can get from a 5G network.”

North America remains Ericsson’s largest market. It reported a 2% year-over-year dip in sales of $2 billion on the continent. 

Ekholm also reiterated progress throughout Ericsson’s portfolio, including massive multiple-input, multiple-output (MIMO) 5G radios expected to ship at the end of this year, and its virtualized Cloud RAN portfolio of basebands that will support mid-band spectrum in the second half of 2022.

“Cloud RAN is a critical element in our product portfolio as this will enable our customers to evolve their networks toward a cloud-native architecture and open network architecture leveraging automation and fully autonomous networks,” he said.

Ekholm claimed Ericsson is taking the same approach to open RAN, but it’s been less enthusiastic about open RAN, thus far limiting disaggregation efforts to the point of vRAN. “The reality is clearly open RAN is something that will happen and that’s what we are investing for as well. We see in reality, the first step to be the Cloud RAN portfolio as that will allow our customers to migrate toward an open architecture,” he said. 

“It will take a few years before we have a fully operational open RAN solution,” Ekholm said, adding that open RAN could reach certain applications sooner, particularly those with lower performance demands. “There are pockets where we can see that come, but for sure open RAN will be a fundamental part of the 6G solutions. That’s no question in my mind. But exactly how it’s going to pan out in the meantime, I think remains to be seen. It depends on how the technology matures clearly.”

That, probably more than anything, reflects where and when Ericsson expects open RAN to make major inroads in the mobile network infrastructure market. 

“We recognize there is a need to build out the 5G networks around the world right now. So it’s a here and now question, where we do believe the purpose-built networks actually can deliver the performance that’s required in 5G today,” he said. 

“We are simply saying, OK, by the time open RAN is ready, we will also be there with solutions, but we don’t feel it’s the right time right now to divert focus from actually what goes on in the market,” Ekholm explained.

Ericsson’s revenue dipped 1% year over year to $6.3 billion during the quarter and it banked almost $450 million in net income, a 51% year-over-year gain. 

Sales in the company’s Networks unit were flat at $4.6 billion, maintaining a 73% share of the company's overall revenue. Ericsson’s Digital Services unit reported an 8% decline in revenue of $911 million and an 8% slide in Managed Services at $588 million. The company’s Emerging Business and Other unit, which includes enterprise WAN vendor Cradlepoint that it acquired for $1.1 billion last year, reported a 29% increase in revenue at $242 million.

Cradlepoint is developing on track with Ericsson’s plans and now expanding globally, Ekholm said. “We’re very excited about the opportunity we create with the acquisition of Cradlepoint to capture a larger and increasing share of the enterprise market, but we should also recognize that Cradlepoint is one piece that we need for the enterprise.”

Ericsson is concurrently pursuing other opportunities in the enterprise market, including dedicated networks for organizations and campus networks, and IoT. “We believe the market opportunity in enterprise is so large that we need to increase the investments in that area by also looking at broader acquisitions outside of Cradlepoint,” Ekholm said. 

The company’s research and development spend jumped to $1.2 billion during the quarter, up $58 million from a year ago, driven largely by increased investments in its growing cloud-native 5G portfolio and in the Emerging Business and Other unit. 

Ericsson’s revenue is Southeast Asia, Oceania, and India was up 8% to almost $819 million. The company reported a 9% decline in revenue from Northeast Asia at $819 million, a 7% increase in Europe and Latin America at $1.6 billion, and an 18% slide in the Middle East and Africa at $519 million.

The Swedish company ended the quarter with 101,623 employees, up 511 employees from the previous quarter primarily due to hires in research and development.