Ericsson steps up restructuring on new quarterly loss

STOCKHOLM, Sweden – Weaker than expected second-quarter sales and profits in a poor growth climate prompted Swedish telecoms giant Ericsson to announce fresh cost-cutting measures on Tuesday, July 18, prompting a plunge in its share price.

Ericsson posted a fourth straight quarterly loss in unveiling April to June figures of 1.0 billion kronor (105 million euros/$121 million) on sales dropping 8% to 49.9 billion kronor, dipping beneath analysts’ forecasts of 50.5 billion.

The company said it saw “increased risk of further market and customer project adjustments with an estimated negative impact on operating income of 3 to 5 billion kronor for the coming 12 months.”

“We are not satisfied with our underlying performance with continued declining sales and increasing losses in the quarter,” said CEO Borje Ekholm, as the share price dropped 10% in Stockholm.

Following those comments, shares in the firm dropped by 10.3% mid-morning to 54.65 kronor in Stockholm tarding.

“Execution of our focused business strategy is gaining traction. However, in light of current market conditions, we are accelerating the planned actions to reduce costs.”

Those cost cuts, to include notably unprofitable service contracts, will amount to at least an annual 10 billion kronor by 2018 with the goal to double operating margins of 2016, a year which saw net profit slump 86 percent. 

Since then, Ericsson has seen a slowing of investments in networking equipment, its core business, and now anticipates a market contraction of between 5% and 9% across 2017 rather than an initial forecast of a two-to-six percent drop.

The group’s uneven performance so far this year saw ratings agency Moody’s downgrade it a notch to Ba1 in May, noting rising restructuring charges and provisions. – Rappler.com