Ericsson’s 5G Core contract with Softbank will be a critical source of long-term revenue in Northeast Asia
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Japanese telecommunications and technology giant Softbank awarded Ericsson a contract to supply cloud-native, dual-mode 5G Core services within its 5G network. 5G Core refers to the base level of software supporting 5G networks, on top of which third-party applications such as edge computing and IoT services can operate.

Ericsson Q2 2020 Revenue Share by Market Area



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Ericsson noted that its container-based architecture will allow Softbank to tailor its 5G network to better serve end users across the mobile consumer, enterprise, and industrial user segments. For instance, one portion of the 5G network could be optimized to reduce latency for smart factory applications, while another portion could be optimized to support the high data throughput needed to connect an IoT network with thousands of devices. 

5G Core contracts tend to be worth less than radio contracts, but they are a critical source of long-term service revenues. Ericsson and Huawei are the top two vendors of 5G Core services in terms of market share, through Cisco, Nokia, Samsung, and ZTE also compete in the field, according to Dell’Oro Group. These vendors are racing to establish 5G Core partnerships now, as this serves as the basis for an ongoing relationship with network operators.

This relationship requires R&D investment on the part of the 5G Core vendor, which can help the network operator derive new capabilities from the 5G network over time. In Ericsson’s Q2 2020 earnings call, CEO Borje Ekholm noted, “5G Core has been won in a number of … customer networks, but [there’s] still a lot of customers remaining.” Ekholm continued, “increasing the pace of innovation here, increasing the pace of feature development is an important way to win customer business.”

5G Core services will play a crucial role in Ericsson’s efforts to boost revenue in Northeast Asia. On a quarter-over-quarter (QoQ) basis, Ericsson’s sales from Northeast Asia grew 99%, from SEK 6.5 billion in Q2 2019 to SEK 3.9 billion in Q2 2020. While 5G equipment deployments played a crucial role in driving revenue growth in Northeast Asia, 5G Core services can help sustain the revenues in the long term.

The Softbank contract builds on Ericsson’s momentum in Northeast Asia, where it now has 5G Core services partnerships with Chunghwa Telecom and Far EasTone in Taiwan, LG U+ in Korea, and China Telecom and China Mobile in China. These relationships can help Ericsson diversify its revenue away from North America and “Europe and Latin America,” which collectively accounted for 57% of Ericsson’s Q2 2020 revenue, but which posted relatively small single-digit QoQ growth.

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