Ericsson reported a slump in sales and profits in Q3, in line with last week’s downbeat preliminary announcement, marking the vendor’s first loss in four years.
Stand-in CEO Jan Frykhammar is pinning the blame for the performance on macro economic factors impacting the networks business in a number of key markets, including Brazil and countries in the Middle East.
He gave the same message at last week’s preliminary results.
Overall net sales fell by 14 per cent to SEK 51 billion ($5.73 billion), while network sales slumped by 19 per cent. The profitability picture was even uglier, with operating income falling from SEK 5.1 billion to SEK 300 million. The company made a loss of SEK 200 million ($20 million), compared to a net profit of SEK 3.1 billion in the year ago quarter.
“We see a challenging market environment mainly related to mobile broadband and a set of countries with a challenging macro economic environment,” Frykhammar told investors.
In addition to the weak performance of markets in Latin America, Middle East and sub-Saharan Africa, capacity sales in Europe were lower than a year ago.
Moreover, one unamed US operator continued to reduce their investments in mobile broadband. Sales in China declined by seven per cent mainly due to lower 3G sales, while 4G deployments were more encouraging. In India the delayed spectrum auctions led to another slow quarter.
The performance had been evident in the first two quarters of 2016, but worsened in Q3, hence last week’s unusual preliminary announcement.
He said Ericsson was active in 181 countries. “We are successful in many of them. When operators reduce capex, we are impacted. That’s natural,” he added.
However, no one should be under any illusions about a fast turnaround, Frykhammar added.
“Industry trends we have at the moment will prevail short term and when we mean short term that is, with the visibility we have, two to three quarters,” he said.
He added that the usual seasonality between Q3 and Q4 will be weaker this year because of a major managed services contract with Sprint being renegotiated in the US, plus no immediate improvement is expected from those challenging markets in Latam, Middle East and elsewhere.
Still seeking a permanent replacement for CEO Hans Vestberg who stepped down in July, the company recently announced thousands of job cuts. In a statement today it added: “We are tracking towards our target to reduce the annual run rate of operating expenses, excluding restructuring charges, to SEK 53 billion, in the second half of 2017. We will implement further short-term actions mainly to reduce cost of sales, in order to adapt our operations to weaker mobile broadband demand. “