TOKYO -- Swedish telecommunication equipment maker Ericsson plans to restructure its operations in China, its second-largest market, after its sales in the country plunged for a second consecutive quarter in the wake of its home government's move to exclude Huawei Technologies and ZTE from 5G mobile networks.

"As a consequence of the loss in sales in China, we have to right-size our sales and delivery organization in China, and that will start in the fourth quarter," said Borge Eckholm, Ericsson's president and chief executive, during the company's results presentation on Tuesday.

"Short term, we need to adjust the cost structure to right-size as much as possible," he said without giving details beyond noting the company would take a charge against earnings in the October-December quarter.

People's Daily last November quoted an Ericsson executive who said that the company then had "more than 10,000" staff in the country.

Ericsson recorded a 74% drop in revenues from China, to 1.3 billion Swedish krona ($150.3 million), in the July-September quarter compared with a year earlier. This followed a 63% drop, to 1.5 billion krona, in China revenues in the second quarter when the company wrote off 300 million krona worth of Chinese inventories.

While China had been Ericsson's second-biggest source of revenue in 2020, it slipped to fourth largest in the second quarter.

"It is quite clear that our market share in mainland China has been reduced," Eckholm said. "This is a consequence or follows the decision Sweden took to exclude Chinese vendors in the build-out of 5G networks in Sweden."

Jefferies analyst Edison Lee said in a client note last week that ZTE had won more than 30% of a network equipment tender by state-owned China Mobile in late September while Ericsson got nothing and Huawei received the balance of contracts.

This compared with ZTE getting 20% of a comparable tender last year and "only teens before," Lee said, indicating the company appeared to have been gaining sales in China at Ericsson's expense in particular.

Ericsson management had been vocal in opposing Stockholm's move to exclude ZTE and Huawei on security grounds, out of worries of possible retribution by China Mobile and its fellow state-owned network operators.

In its latest annual report in March, Ericsson said exclusion "risks collateral damage from a weakened Swedish-Chinese relationship" and added in the second quarter its concern about potential Chinese measures "targeted at the economic interests of Sweden and Swedish industry, including those of Ericsson."

Ericsson's overall revenue for the second quarter fell 2% to 56.3 billion krona, as gains in other markets only partly offset the decline in Chinese sales. Net profits, however, rose 4% from a year earlier to 5.8 billion krona.

"It is quite clear that loss of sales in China hurts our sales volume in total," Eckholm said. "We need to invest more to regain that loss in volume by growing in other markets."

He remains hopeful about the company's long-term prospects in China, however.

"I like to think when you lose a contract, the day after, you start to fight to win it back," he said. "The same is the thing with China. I do believe we have a chance to win back the trust to deliver products in the future."

Separately, Eckholm acknowledged that a shortage of some unspecified "independent components" due to supply-chain disruptions had cost the company some sales last month after having negligible impact earlier.

"I wouldn't exaggerate this as we have reasonably good visibility," Eckholm said, while admitting disruptions do "pose some threat."