Ericsson Wins China Contracts; China Growth Still Expected to Slow

Ericsson won $1.8 billion in contracts to provide equipment to two of China’s largest operators, China Mobile and China Unicom, the manufacturer said Monday. The manufacturer still is likely to see growth in China slow down this year after the three major Chinese operators cut their investments in 3G, analysts said.

The contracts would mean increased 2010 revenue from last year for Ericsson, a spokeswoman said. The two deals are related to both 2G and 3G technologies, she said. The manufacturer will help deployments of TD-SCDMA, China’s home-grown 3G technology, for China Mobile and WCDMA for China Unicom, she said. The $1 billion contract with China Mobile aims at offering equipment to “dramatically boost” the operator’s network capacity and “evolve it into an IP network” this year, Ericsson said. The $800 million contract with China Unicom includes offering a faster 3G network and supplying IP routers, fiber access and other technologies by year’s end, the company said. The contracts are Ericsson’s framework agreements with Chinese operators, the spokeswoman said.

With a potential customer base of 1.3 billion, telecom operators are now taking steps to further expand and boost China’s communication infrastructure and related services, Ericsson said. Large contracts suggested that Ericsson could have a “reasonably good year in China” with little changed or slightly higher sales in 2010 vs. 2009, said Bernstein Research analyst Pierre Ferragu. Ericsson’s annual framework agreements with China Unicom and China Mobile have in previous years made up around two thirds of the company’s total sales in the country, he said. The new contracts are more extensive than the ones signed in 2009, for $1.7 billion, he said.

Ericsson may still see a slowdown in its growth in China this year after 2009 had “unprecedented growth,” Swedbank analyst Haakan Wranne said. With the 3G building binge largely over, China’s carriers’ spending on equipment is expected to be down 21 percent from 2009 and mobile spending should be down about 25 percent, said Barclays Capital. Spending in Europe that’s little changed and an uptick in U.S. mobile network spending will offset the losses, they said. China Unicom is taking the biggest cuts, slashing 2010 capital spending by 35 percent from last year. China Telecom is keeping its wireline spending little changed but plans to spend 50 percent less this year on mobile than 2009. China Mobile will trim total capital spending 5 percent in 2010.