Ericsson wary of FX impact in Brazil
The biggest threat for Ericsson's business in Brazil is the sudden strength of the dollar against the Brazilian real.
While Ericsson has been manufacturing equipment and networks in Brazil since the 1950s, most of the parts and components are imported and exposed to FX. A strong depreciation of the local currency therefore exerts pressure on costs, which the company has been targeting. As part of a massive global restructuring, Ericsson has cut 8.5bn Swedish krones (US$1bn) in costs, in part by shedding 18,000 jobs since last July.
"What concerns us the most is the strengthening of the dollar. A ramp-up of the US currency has a huge impact on the entire production chain. If the dollar rises too much, this is a problem," Ericsson Brasil CEO Eduardo Ricotta told BNamericas.
The Brazilian currency has been underperforming other emerging market currencies recently as a result of uncertainty around the October presidential elections and increasing interest rates in the US.
The dollar has strengthened 10% against the real since the beginning of the year. On Tuesday, the US currency closed at 3.47 reais, its strongest level since December 2016.
"A dollar peak hits us instantaneously. That's my only concern in election years," Ricotta said at the company's headquarters in São Paulo.
"The rest of the picture is looking good: I think economic growth is being addressed, inflation is well-controlled. Also, there's been an overall detachment of politics and economy."
Ricotta added that Ericsson has finished its round of layoffs in Brazil, and announced a 5G test in the country during Q3.
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