CompanyGraph
Telefonaktiebolaget LM Ericsson Class B
0O87 · Sweden
Builds 5G network equipment for wireless carriers and collects royalties from every smartphone maker whose devices use cellular protocols.
Ericsson builds the base stations and radio hardware that carry 5G traffic for wireless carriers, and it also holds patents on the fundamental protocol mechanisms — dating back to 2G — that every smartphone must implement just to connect to any cellular network on earth. Because those protocols are mandatory for any device to work on any carrier's network, every Android or iPhone shipment triggers a royalty obligation to Ericsson regardless of whose base stations are actually installed, which means the patent income flows even when a rival wins the infrastructure contract. Each new generation of 3GPP standards extends that patent portfolio further, but it also forces Ericsson to commit years of R&D spending before carriers begin buying the new equipment, so the timing of returns is controlled by an external standards body rather than by Ericsson itself. The whole structure rests on courts continuing to enforce those patents at meaningful royalty rates — if regulators ever ruled that essential patents must be licensed at close to zero, the licensing revenue would disappear while the equipment business, already under pressure from Open RAN disaggregation, would have to carry the company alone.
How does this company make money?
Ericsson earns money three ways. First, it sells base stations and radio access equipment to wireless carriers under multi-year infrastructure contracts. Second, it charges recurring fees for software and support services tied to cloud-native network functions running on that infrastructure. Third, it collects per-handset royalties from smartphone manufacturers — the payment is calculated as a share of the device's selling price, and it applies to every phone shipped that uses cellular protocols, regardless of which company built the network the phone connects to.
What makes this company hard to replace?
A carrier's 5G network must connect seamlessly to its existing 2G, 3G, and 4G infrastructure through specific software protocols, which ties new equipment choices to what is already installed. Switching to a new vendor also triggers a requalification process that typically takes 18 to 24 months of reliability testing before the new equipment can go live on a production network. Patent cross-licensing agreements between Ericsson and other infrastructure vendors add another layer of dependency that is difficult to unwind.
What limits this company?
3GPP sets the timeline for each new generation of wireless standards, and no single company can speed that process up. Ericsson has to spend years and billions developing equipment before carriers are even ready to buy it. On top of that, building hardware for the highest 5G frequencies — above 24 GHz — requires engineers who specialize in antenna physics and radio wave behavior at those wavelengths. That kind of expertise cannot be automated or bought off the shelf quickly, so the number of qualified engineers caps how fast new products can be built.
What does this company depend on?
Ericsson cannot operate without ARM and Intel semiconductor platforms for the baseband processing inside its equipment, Qualcomm chipsets for its 5G radio units, 3GPP's published specifications to achieve interoperability compliance, and country-by-country certifications from national telecommunications authorities before any hardware can be switched on. It also relies on its Swedish krona-denominated engineering workforce based at its Stockholm headquarters.
Who depends on this company?
Verizon and AT&T would lose coverage in specific geographic cells if Ericsson's 5G radio access equipment went dark. Businesses running private 5G networks — including factories using IoT sensors and automated manufacturing systems — would lose connectivity. Android and iPhone manufacturers would face patent litigation risk if their licensing agreements with Ericsson ended.
How does this company scale?
Software-defined networking code and the 3GPP protocol implementations written into Ericsson's base stations can be copied across every new deployment at almost no added cost — one version of the software serves thousands of sites. What does not scale easily is the radio frequency engineering work needed for millimeter wave 5G bands, which requires specialists trained in antenna physics and spectrum management and cannot be replaced by capital spending alone.
What external forces can significantly affect this company?
U.S. government restrictions on Chinese equipment vendors like Huawei open doors for Ericsson in some markets, but related export controls can cut off access to Chinese semiconductor suppliers. European Union digital sovereignty policy is pushing carriers toward Open RAN, a design approach that breaks radio access hardware into interchangeable parts — which would squeeze the margins on Ericsson's equipment even if it left the patent royalties untouched. Swings in the Swedish krona exchange rate affect how Ericsson's costs compare to those of Asian competitors who pay workers in cheaper currencies.
Where is this company structurally vulnerable?
If a court or regulator ruled that Ericsson's 3GPP-essential patents must be licensed at rates close to zero — or ruled that specific patents are not actually essential to the standard — smartphone makers would no longer owe meaningful royalties. That would collapse the licensing income stream that currently flows in regardless of how equipment sales are going.