Ericsson Shares Plunge on Profit Warning -- 3rd Update
October 12 2016 - 6:26AM
Dow Jones News
By Matthias Verbergt and Dominic Chopping
STOCKHOLM-- Ericsson AB, one of the world's largest makers of
telecom equipment and Sweden's flagship tech company, Wednesday
capped a series of management shake-up and job-cut announcements
with a profit warning that sent its share price tumbling and laid
bare how the rise of Asian rivals has wounded Western
suppliers.
The company said its third-quarter earnings will be
"significantly lower" than expected, citing a 19% sales decline in
its core mobile-network equipment business.
The news sent the company's share price down as much as 18%
Wednesday morning.
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 the traditional
European turf of Ericsson and Finland's Nokia Corp.
The company has also been hurt by economic weakness in
developing markets such as Brazil, Russia and the Middle East.
Ericsson said it expected 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.
Jan Frykhammar--who took over as interim chief executive in July
after CEO Hans Vestberg was ousted --offered no prospect for a
quick turnaround, warning 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."
"Ericsson's profit warning is troublesome and underlines how
very weak business climate is within radio and mobile broadband,"
said Mathias Lundberg, an analyst at Swedbank. He added that the
slowdown in global mobile-phone sales was also denting Ericsson's
lucrative patent business.
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.
Ericsson's said the shift to services sales contributed to a
decline of its third-quarter gross margin to 28%, compared with 34%
in the same period last year.
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.
Mr. Frykhammar said he expects the current trends to continue in
the next two to three quarters. Ericsson said it will provide more
details on Oct. 21, when it publishes its full third-quarter
report.
Write to Matthias Verbergt at Matthias.Verbergt@wsj.com and
Dominic Chopping at dominic.chopping@wsj.com
(END) Dow Jones Newswires
October 12, 2016 06:11 ET (10:11 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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