Ericsson Warns on Profit as Demand Dries Up -- Update
October 12 2016 - 03:13AM
Dow Jones News
By Matthias Verbergt and Dominic Chopping
STOCKHOLM-- Ericsson AB issued a profit warning Wednesday as it
continues to battle a severe slowdown in demand for its cellphone
towers and switches, just a week after it announced plans to slash
almost 20% of its domestic workforce.
The Swedish company said its third-quarter earnings will be
"significantly lower" than expected, citing a 19% decline in sales
of its core mobile-network equipment business.
Ericsson is being hit hard as spending by mobile-service
providers on latest-generation, or 4G, networks has largely dried
up, with most mobile broadband projects having been completed last
year. At the same time, competition has risen, with Huawei
Technologies Co. of China expanding aggressively on Ericsson's
traditional European turf and Nordic rival Nokia Corp. building
muscle by acquiring Alcatel-Lucent SA.
The company has also been hurt by economic weakness in
developing markets such as Brazil, Russia and the Middle East.
It expects to post third-quarter sales of 51.1 billion Swedish
kronor ($5.79 billion), down 14% from 59.2 billion kronor last
year, with operating profit falling 93% to 300 million kronor from
5.1 billion kronor, partly on restructuring charges of 1.3 billion
kronor.
Ericsson is now betting on the development of faster wireless
networks, called 5G, and software-based services such as the
so-called Internet of Things and cloud computing. But the first
revenue from 5G is several years away, and take-up has been slow,
analysts say.
Last week, Ericsson announced plans to lay off nearly 20% of its
16,000-strong home-country workforce. The job cuts were a first
step in a wider restructuring program in which Ericsson plans to
significantly reduce its global staff of 115,000.
Jan Frykhammar--who took over as interim chief executive in July
after Hans Vestberg was ousted, having failed to reverse a
protracted trend of declining profit and revenue--warned that
additional cost-cutting measures may be necessary.
"Continued progress in our cost reduction programs did not
offset the lower sales and gross margin," Mr. Frykhammar said. "We
will continue to drive the ongoing cost program and implement
further reductions in cost of sales to meet the lower sales
volumes."
Mr. Frykhammar said he expects the current trends to continue in
the short term. Ericsson said it will publish its full
third-quarter report on Oct. 21.
Write to Matthias Verbergt at Matthias.Verbergt@wsj.com and
Dominic Chopping at dominic.chopping@wsj.com
(END) Dow Jones Newswires
October 12, 2016 02:58 ET (06:58 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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