Restructuring charges hit Ericsson profit - Mobile World Live

Restructuring charges hit Ericsson profit

17 JUL 2015

Ericsson saw its bottom line hit by restructuring charges in Q2, although on a positive note its troubled North American operation has stabilised compared with the start of the year.

The company reported a net income of SEK2.1 billion ($245 million), down 20 per cent from SEK2.7 billion, on revenue of SEK60.7 billion, up 11 per cent from SEK54.8 billion. However, sales adjusted for comparable units and currency decreased by 6 per cent year-on-year.

The numbers were significantly impacted by restructuring charges of SEK2.7 billion. Operating income excluding restructure charges stood at SEK6.3 billion, up 49 per cent from SEK4.2 billion year-on-year.

Ericsson recently announced a large round of job cuts in its home market, as part of a campaign to achieve savings of SEK9 billion during 2017 relative to 2014.

“We are starting to see the impact of the savings. Later in 2015, as people start to leave the payroll in Sweden, we begin to see the bigger savings. We are on plan,” Jan Frykhammar, CFO of Ericsson, told Mobile World Live.

Excluding restructuring charges and currency effects, operating expenses were slightly down year-on-year, Ericsson said.

While further cuts are anticipated, the executive would not be drawn at this stage on where the axe may fall. “We continue to work to identify different efficiency measures, at the same time we will not talk in general about forecasts and so forth. If we see that we have structural savings and efficiencies to gain, we will inform the employees in that particular country first,” he said.

“The fundamental is that we are trying to do two things: firstly, we try to become more effective and efficient as a company; and then at the same time we employ both service engineers, solutions architects, for instance, and sales people who can help us grow our target areas. So there will also be increases in headcounts related to target areas,” he continued.

With regard to sales, Ericsson said that its North America region stabilised during the quarter, but remained at a lower level than a year ago. Total revenue for the region of SEK14.6 billion were down 4 per cent year-on-year, but up 19 per cent quarter-on-quarter.

“From our point of view at least, the market is not declining anymore, it is sort of stable, and we saw some increases in the mobile broadband network business compared to the first. That’s why we used the word stabilisation, rather than any word we have used before, which was more around short term uncertainty and slowness,” the CFO said.

With the wide rollout of 4G in China also benefiting operators in recent quarters, Frykhammar said that this is likely to continue in the immediate future. “The pace we are at right now, and have been at for three or four quarters, is what we think we will continue with for the rest of this year.”

Vendor consolidation
While Michel Combes, CEO of Alcatel-Lucent, has warned of “potential disturbance” in customer activity ahead of its planned merger with Nokia, which will create an emboldened rival to Ericsson, Frykhammar said that Ericsson is not seeing evidence that this is the case.

“I haven’t heard or seen any changes in terms of customer behaviour,” he said, noting that for Ericsson it is “absolutely business as usual: we continue to stay very much focused on executing our own strategy”.

Operator consolidation issues
With a number of high-profile mergers between operators underway, particularly in Europe, where in-market consolidation is the order of the day, the Ericsson CFO also detailed how this is likely to impact vendors.

“If we look at the experiences we have around consolidation in the operator space, which has been ongoing for many years for example in the US market, I think fundamentally fewer operators is good for the industry mid to long term, because it creates stronger customers that can sustain investments and differentiate by means of quality,” he said.

“For Ericsson, and I think it goes for all vendors, during a period of consolidation, whether it has been announced or it’s speculation, it can create a bit of short-term uncertainty in terms of spend levels. But once mergers start being executed, there is a service opportunity initially, to support the customers in executing some of their synergies, with IT platforms and networks and so forth. Later on, it provides a capex opportunity as well,” Frykhammer continued.

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