Ericsson to Cut Costs Further After 24% Drop in Net Profit --3rd Update
July 19 2016 - 4:14AM
Dow Jones News
By Matthias Verbergt
STOCKHOLM--Swedish telecom-equipment maker Ericsson AB announced
further cost reductions after reporting a 24% drop in
second-quarter net profit, citing continued weak product demand in
most of its markets.
The company, one of the world's largest telecom-equipment
providers, said on Tuesday its net profit for the period that ended
in June fell to 1.59 billion Swedish kronor ($0.186 billion) from
2.09 billion kronor a year earlier. Second-quarter revenue amounted
to 54.11 billion kronor, down 11%, compared with 60.67 billion
kronor in the year-earlier period.
Ericsson attributed the decline in sales to budget cuts by
telecom operators, many of which completed large broadband projects
last year, while several emerging markets suffered from slower
economic growth.
The company said it would double its savings in operating
expenses by 2017, having announced earlier an efficiency program of
9 billion Swedish kronor.
Ericsson added that it would reduce research and development
investments and capture efficiency gains from the new company
structure it announced in April.
The firm expects the savings to lower its annual running rate of
operating expenses, excluding restructuring charges, to 53 billion
kronor in the second half of 2017, compared with 63 billion kronor
for full-year 2014.
"To manage the lower demand for mobile broadband investments, a
set of significant actions has been initiated to further drive
efficiency improvements and reduce cost," Ericsson Chief Executive
Hans Vestberg said.
Ericsson's share price has lost about a third of its value over
the past year, as established companies in the sector face
competition from new operators, such as Huawei Technologies Co.,
the rapidly growing Chinese network equipment maker that has been
offering innovative products at competitive prices.
In response to pressure from telecom providers to offer a
broader range of equipment, Ericsson has struck a partnership with
Cisco Systems Inc., projecting the alliance would add $1 billion or
more in annual sales for each company by 2018. The partnership with
Cisco will allow Ericsson to expand its product range to include
fixed gear, such as Internet routers.
In a similar effort to broaden its product line, Finnish rival
Nokia earlier this year completed the acquisition of France's
Alcatel-Lucent SA. In May, Nokia posted a surprising first-quarter
loss.
In the previous quarter, Ericsson announced changes to its
executive team and company structure, as part of a broader
reorganization of the company into five business units and one
dedicated customer-service unit.
Ericsson's decision to cut costs further follows calls from
analysts and investors for the company to lower its expenditure. "A
lot of investors want Ericsson to save a lot more," said Mattias
Eriksson, an independent equity analyst, ahead of Tuesday's
report.
Last month, Ericsson said it is being investigated by U.S.
authorities over possible corruption.
Write to Matthias Verbergt at Matthias.Verbergt@wsj.com
(END) Dow Jones Newswires
July 19, 2016 03:59 ET (07:59 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
Ericsson (NASDAQ:ERIC)
Historical Stock Chart
From Aug 2024 to Sep 2024
Ericsson (NASDAQ:ERIC)
Historical Stock Chart
From Sep 2023 to Sep 2024