Ericsson and Nokia should benefit from the US-led campaign to ban Huawei Technologies from Western mobile networks. The size and timing of the possible dividend is not so clear. So far, the Chinese telecom equipment maker’s efforts have largely been limited to the sluggish European market for 5G equipment.
At first glance, the maneuvers against Huawei, which according to Washington could be a conduit for Chinese espionage, have produced compelling results. Britain announced a ban in July, quickly followed by France. Germany is weighing its options. If Berlin also excludes the products of the Shenzhen company, Ericsson and Nokia will effectively have a duopoly in three of the world’s seven major economies.
However, closer inspection reveals several reasons for caution. First, there is no change in Huawei’s position in the United States, where it is already banned, and in China, where it already dominates. Second, the British and French bans will not be fully enforced for seven years. By then, new technologies may have eroded the trio’s leadership. And third, European investment in 5G remains small, in part because geopolitical uproar has led carriers to curb spending.
Europe’s annual outlay on 5G equipment may reach about $ 3.3 billion a year in 2023, according to consultancy Dell’Oro, from less than $ 500 million last year. If Nokia and Ericsson divide that by two, they should each get $ 550 million in additional revenue by 2023, according to our calculations.
Assuming the improvement in pricing power brings Ericsson’s ebitda margins to 17%, from the current 13%, that’s $ 90 million of extra ebitda. The Swedish company’s equity and debt are currently valued at 8 times the expected ebitda for 2023. At that multiple, Huawei’s dividend equals just $ 770 million in additional present value, or just 2% of its business value. , 33,000 million dollars.
There are other factors that could support the valuations of both companies in the stock market. The possibility that a US tech group could plummet may help explain the 18% rise in Ericsson’s share price this year. But for the pair to get a bigger dividend from 5G, Huawei will have to suffer more damage. India is probably heading towards a ban. And Washington’s restrictions on Huawei’s access to US-designed microchips could also cause customers in Asia or Africa to disconnect. Until then, however, Nokia and Ericsson are eyeing surprisingly few and far between harvests.
The authors are columnists for Reuters Breakingviews. Opinions are yours. The translation, of Carlos Gómez Down, it is the responsibility of Five days