I bought Ericsson (ERIC) back on August 5, 2020 because of the growth it would see, I thought, from the roll out of the next generation–5G–of wireless systems.
The problem for the company–and the stock–is that it has been hit hard the global battle between China (which has championed its own equipment vendors) and Sweden and other Western governments that worry that Chinese equipment suppliers such as Huawei with their close ties to the Chinese government and its military pose a security threat to their telecom networks. This has led to pressure from the United States on U.S. companies (and on allied governments) to restrict purchases from Huawei and other Chinese vendors and to a counterattack from from China on Western vendors such as Ericsson. In the quarter reported on October 19 Ericsson said revenue was down 2% year over year due to a plunge sales to Northeast Asia (read China) to 35% and of 17% in Southeast Asia. Sales to North America grew by 10% and European sales expanded by 8% but that was enough to offset the effects of the decline in China. (Sweden has banned Huawei from selling wireless gear in that country and Ericsson has lost most of its market share in the latest round of equipment bidding in China.)
Ericsson also announced that global supply chain issues have led to shortages of critical chips–a view echoes by wireless equipment maker Nokia (NOK) “Late in Q3 we experienced some impact on sales from disturbances in the supply chain, and such issues will continue to pose a risk,” Ericsson CEO Börje Ekholm said in a statement.
The global supply chain disruption is one disruption too many for me. I’m selling Ericsson out of my Jubak Picks Portfolio with a loss of 6.3% (as of the close on October 27) since I added it to the portfolio on August 5, 2020.