Ericsson remains in the red as restructuring takes toll - Mobile World Live

Ericsson remains in the red as restructuring takes toll

20 OCT 2017

Ericsson CFO Carl Mellander did not shy away from what he described as a “tough Q3” after the vendor’s woes continued with a net loss of SEK4.3 billion ($526.6 million) in the quarter.

The Sweden-based network infrastructure player, which is currently undergoing a company wide restructuring plan in a bid to revive its fortunes, saw overall revenue drop 6 per cent, from SEK51.1 billion in Q3 2016 to SEK47.8 billion in the recent quarter, with network sales dropping 4 per cent.

Ericsson’s Q3 2017 net loss was far higher than the SEK200 million loss it recorded in the same period of 2016. Operating income also slipped into the red: SEK4.8 billion in the recent quarter compared with a SEK300 million profit in Q3 2016.

Speaking to Mobile World Live (MWL) in an interview following the announcement, Mellander (pictured, below) said while the net loss was large, it is “important to separate the underlying business performance and one-off business items”.

The company, which is putting additional focus on its core network business in the build up to 5G, said it was hit with a restructuring cost of SEK2.8 billion during the quarter, including a write down of SEK1.6 billion related to a decision to close an ICT centre in Canada.

As it had warned in its Q2 announcement, the company also made provisions and adjustments of SEK2.3 billion related to customer projects, as it attempts to restructure or pull out of unprofitable deals.

Mellander said by “disregarding those costs, we delivered a result which is break even”, in terms of operating profit.

But he warned the restructuring costs would continue in the fourth quarter, earmarking a figure of between SEK3 billion and SEK4 billion.

“The whole idea is to become a faster, more efficient company with a lower cost base into next year,” he said: “We are on track to deliver the SEK10 billion cost reduction by half year next year”.

Job cuts
The SEK10 billion figure, announced in the previous quarter, led to media speculation Ericsson could cut 25,000 jobs outside Sweden in its attempts to achieve the saving.

While Mellander conceded a “reduction on the number of employees is necessary” as part of cost cutting, the company had no plans to announce wholesale layoffs like those indicated in the press reports.

“We are looking at the organisation piece by piece and country by country,” he said.

In Q3, Mellander said Ericsson had a net reduction of 3,000 employees, noting the figure included the hiring of 1,100 engineers for 5G R&D and other areas.

Media, broadcast sales
As part of its restructure, the company is also exploring the sale of its two broadcast and media units, as it abandons two business segments it had once looked upon for future growth.

Mellander told MWL the company continues to pursue strategic options for both, and the situation is “progressing well”.

China 5G
Another point worthy of note from the results announcement is Ericsson’s clear desire to grab a lucrative slice of China’s future 5G market. However, Ericsson suggested it is willing to sacrifice profit at the expense of market share in the region (where domestic rivals Huawei and ZTE traditionally dominate).

In a statement it noted its success in increasing its market share “will have a dilutive effect on gross margin in Mainland China in Q4 2017, but the ambition is to continue to deliver double digit adjusted operating margin in Networks in Q4 2017.”

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Kavit Majithia

Kavit joined Mobile World Live in May 2015 as Content Editor. He started his journalism career at the Press Association before joining Euromoney’s graduate scheme in April 2010. Read More >>

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