Ericsson remains in the
red, market outlook darkens
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[July 18, 2017]
STOCKHOLM (Reuters) - Sweden's
Ericsson reported a worse than expected second-quarter loss on Tuesday
and lowered its forecast for the mobile infrastructure market, blaming
persistent low investment by telecoms companies.
Ericsson shares fell more than 11 percent to 54.20 crowns by 1110 GMT,
with the figures fuelling concerns that plans by CEO Borje Ekholm, who
took charge in January, will not be enough to restore profitability.
The company is facing mounting competition from China's Huawei [HWT.UL]
and Finland's Nokia as well as weak emerging markets and falling
spending by telecoms operators with demand for next-generation 5G
technology still years away.
Ericsson has responded by cutting jobs and costs but those efforts are
yet to stop the rot.
"We are in a phase of turnaround but it's going to take some time,"
Ekholm said on Tuesday, repeating the firm was on course to double 2016
margins after 2018.
Operating loss in the second quarter was 1.2 billion Swedish crowns
($145.3 million), compared with a 2.8 billion profit a year earlier and
a mean forecast for a 244 million crown loss seen in a Reuters poll of
analysts.
Ekholm's strategy to stabilize the business includes exploring options
for its loss-making media arm and reviewing unprofitable managed
services and network rollout contracts.
"We see a more challenging investment environment in Europe and Latin
America, that's clearly the market area with the biggest impact," Ekholm
added.
"We see macro economic uncertainty in Middle East and Africa that is
hurting investment. We see also that operators have funneled the
investments more into fiber investments for example than into radio
capacity."
The company, backed by prominent Wallenberg family-backed Investor AB
and Industrivarden, said it was targeting cost cutting to achieve an
annual run rate reduction of at least 10 billion crowns by mid-2018.
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The exterior of an Ericsson building is seen in Stockholm April 30,
2009. REUTERS/Bob Strong/File Photo
MARKET DECLINE
Ericsson stunned investors earlier this year by announcing $1.7 billion in
provisions, writedowns and restructuring costs.
Moody's cut the company's credit rating to junk in May, partly due to worries
that the cost-cutting could hamper innovation.
Adding to the sense of gloom, Ericsson said it now sees the mobile
infrastructure market falling by a high single-digit percentage this year,
compared to its earlier guidance of a 2-6 percent decline.
"Ericsson doesn't deliver, they lose versus the market and the market is weak,"
said Inge Heydorn, fund manager at Sentat Asset Management, which has no
position in Ericsson shares.
In 2018 it expects the mobile infrastructure market to fall by a low single
digit percentage and to flatten out in 2019, CFO Carl Mellander told Reuters.
Sales at Ericsson, one of the top global mobile networks equipment makers, were
49.9 billion crowns below a consensus forecast of 50.5 billion, while the gross
margin came in at 27.9 percent versus the 28.4 percent seen by analysts.
Operating profit in the Networks segment almost halved to 2.6 billion crowns in
the second quarter, while both IT & Cloud and the media segments posted higher
losses versus a year ago.
It had a net cash position of 24 billion crowns by the end of June, down from 28
billion at the end of March.
(This version of the story was refiled to fix garble in second paragraph)
(Reporting by Helena Soderpalm and Olof Swahnberg; editing by Justyna Pawlak and
Keith Weir)
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