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Analysis

What do Ericsson's and Microsoft's results mean for LatAm?

Bnamericas Published: Thursday, January 26, 2023
What do Ericsson's and Microsoft's results mean for LatAm?

Telecom operators are hitting the brakes when it comes to network spending, except in areas where investment is indispensable such as in deployments mandated by spectrum auctions.

Capex cuts are being seen mostly in advanced markets. In Latin America, where 5G is just emerging, telco spending is overall steady, although some slowdown is looming on the horizon.

Ericsson, one of the top three global vendors of network equipment to carriers, reported stable Q4 sales for its Europe and Latin America geography. Revenue came in at 20.9bn Swedish kronor (US$2.05bn), up 9% year-over-year and flat when FX-adjusted. 

In 4Q21, Europe and LatAm sales had grown 12% as reported, with LatAm up by 19% in currency-adjusted terms. 

For the fourth quarter of 2022, Ericsson did not provide details for Latin America.

Full-2022 Europe and LatAm sales reached 66.8bn kronor, up 11% and 4% as adjusted.

The broader region accounted for 24% of the group’s sales in the quarter, second only to North America. India was the area where Ericsson saw 5G market share gains. Overall, Ericsson’s global sales were 86bn kronor in Q4 and 271.5bn in the full year, up 21% and 17%, respectively.

In Latin America, Ericsson has said publicly that it has installed 5G networks for Claro and TIM in Brazil, and DirecTV in Colombia. Other contracts include Entel Chile and Cloud2U in Brazil. 

The Swedish company is also supplying equipment for a 5G laboratory of Telefónica Argentina, while it has several projects underway for private 5G networks.

Worldwide, Ericsson reports 141 live 5G networks in 61 countries.

“We expect 2023 to be rather choppy with near-term uncertainties and macroeconomic headwinds that will likely impact operator capex. So, as expected, during Q4, we've seen some operators slowing the pace on network investments. And that includes front-runner customers in many markets,” CEO Borje Ekholm told investors in an earnings call.  

“We expect operators to continue to sweat … in response to the macroeconomic headwinds.”

Ericsson is making cost savings initiatives that it expects to take full effect by the end of 2023, but with the impact starting to show during Q2, according to the CEO.

These include ongoing revision of the cloud and software business and the divestment of the loss-making IoT business.

Ericsson is placing most of its bets on corporate projects and enterprise wireless networks.

“We are investing to retain our leadership in 5G, but we're also working to shape the future industry structure and how the industry will expose, monetize and consume advanced network features that 5G networks can provide. And this will allow us to transform into a platform company,” said Ekholm.

MICROSOFT

Following the announcement of 10,000 job cuts amid slower post-pandemic tech spending, Microsoft reported poorer-than-expected results for its fiscal second quarter ended December 31.

Yet, the US giant showed certain strengths in key segments such as cloud, where revenue was US$27.1bn, up 22% year-over-year. Overall net sales were US$52.7bn in the quarter, up 2%.

“The next major wave of computing is being born, as the Microsoft Cloud turns the world’s most advanced AI models into a new computing platform,” said Satya Nadella, chairman and CEO of Microsoft, in a release.

“We are committed to helping our customers use our platforms and tools to do more with less today and innovate for the future in the new era of AI.”

Few specifics were provided about LatAm operations. Nadella told investors during the company’s quarterly call that Globo, the largest Brazilian TV broadcaster, chose Microsoft’s digital advertising platform Xandr to launch a new media buying platform in the country.

In capital expenditures, Microsoft said it expects growth above all in its datacenter business, although it is trimming down overall capex.

“Our datacenter investments continue to be based on near-term and longer-term customer demand, including AI opportunities,” CFO Amy Hood told the call.

Cloud is one of the main focuses for the tech giant in Latin America. 

At present, Microsoft currently boasts just one cloud region in LatAm, in Brazil’s São Paulo state. 

Launched in 2014, the Brazil South region has three availability zones and connects to a second cloud ‘subregion’, Brazil Southeast.

But the company is working on two new cloud regions set to launch soon in Latin America: in Santiago, Chile, and in Querétaro, Mexico.

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