Ericsson's misfortunes continued on Thursday as the company reported another sharp fall in quarterly sales and swung to a $180 million net loss, blaming weak demand for mobile broadband products and a fall in licensing revenues for the latest setback.

Net sales in the October-to-December quarter dropped 11%, to 65.2 billion Swedish kronor ($7.4 billion), compared with the year-earlier quarter, and would have fallen 15% without favorable currency movements. For all its ongoing restructuring efforts, Ericsson AB (Nasdaq: ERIC) reported a net loss of SEK1.6 billion ($180 million) compared with a profit of SEK7 billion ($790 million) for the same period a year ago.

Despite a dividend cut, Ericsson's shares opened 3.9% higher in Stockholm and were trading up 1.8% at the time of publication. Perhaps fearing worse, investors may have taken heart from cost-cutting progress and the expectation that conditions in some markets will prove more favorable this year than last. But the stock has a long way to go before it recovers: Ericsson's share price has lost about 29% of its value during the past 12 months.

The earnings update was the first since Börje Ekholm took charge earlier this month and may have disappointed those hoping Ericsson's new CEO would have more to say on his strategic plans for reinvigorating the ailing Swedish equipment maker. (See Eurobites: Ekholm Takes the Reins at Ericsson.)

Amid some speculation he is preparing Ericsson for an eventual sale, Ekholm confirmed suspicions that a chief focus will be further cost cutting at the company, noting in his official statement accompanying the quarterly results that he plans to prioritize "profitability over growth." (See Is Ekholm Ericsson's Savior or Seller? and Cost Cutting Must Continue, Says Ericsson's New CEO.)

But the ultimate goal, he insisted, is to amass capital for investment in future growth areas. "The priorities are to make sure we can invest enough capital in the areas where we must win," he told analysts earlier today. "We have strong R&D functions and product offerings but we must be competitive in five to ten years and that means having more attractive profitability."

Nevertheless, while Ekholm singled out 5G as an area in which Ericsson must be the market leader, he admitted that he has yet to come up with a clear vision for the company. "This is work we are doing right now, and I enter with some ideas, but the reality is that we need to make it a strategy we can execute on," he said. "It might be disappointing that we don't say this is exactly what we will do, but it is more important to make sure we can execute so please bear with us."

Ericsson has been toiling in markets beset by economic and cyclical slowdowns, as customers rein in spending on mobile networks in advance of 5G investment cycles. It has also failed to address the competitive challenge from Asian rivals, particularly China's Huawei Technologies Co. Ltd. (See Beginning of the End for Ericsson?)

Following a sequence of gloomy earnings updates, Ericsson dispensed with erstwhile CEO Hans Vestberg in June 2016, appointing Ekholm as a full-time replacement in October. (See Ericsson Appoints Investor AB's Ekholm as New CEO.)

But the task facing the new CEO -- an acolyte of the Wallenberg family, one of Ericsson's biggest shareholders through its Investor AB investment firm -- is immense. (See 10 Key Tasks for Ericsson's New CEO.)

Next page: Running to stand still

Running to stand still
Even on the efficiency front, Ericsson is struggling. Under its current strategy, it is trying to reduce the annual "run rate" of operating expenses from SEK63 billion ($7.1 billion) in 2014 to SEK53 billion ($6 billion) by the second half of this year. That initiative appears to be on track, with full-year operating expenses falling to SEK56.4 billion ($6.4 billion) last year. And yet, even excluding restructuring charges, Ericsson's gross margin shrank to 29.4% in the fourth quarter, from 36.6% a year earlier, due to the sales slump.

Ericsson attributed that slump partly to a sharp fall in licensing revenues -- down 31% for the full year, to SEK10 billion ($1.1 billion) -- following the increase it witnessed in 2015 after reaching a major patents agreement with Apple Inc. (Nasdaq: AAPL).

"The revenue stream from IPR [intellectual property rights] is falling due to unlicensed actors gaining market share," said Ekholm. "That puts our income under pressure but we do have a strong IPR portfolio that could be the basis for future growth and new business models."

The company has now set a "baseline" for IPR business of SEK7 billion ($790 million) annually, with Ekholm saying it plans to pursue "non-compliant" actors as well as new licensing models.

The desire to boost revenues from licensing seems to mirror the ambition of Finnish rival Nokia Corp. (NYSE: NOK), which is similarly focused on further monetizing its intellectual property. But SEK7 billion ($790 million) would represent just 3.1% of Ericsson's total sales last year. Jan Frykhammar, Ericsson's executive vice president (formerly CFO and acting CEO following Vestberg's departure), also conceded that industry developments continue to put pressure on royalty rates.

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Ignoring licensing and stripping out foreign exchange effects, revenues fell by 6% at Ericsson's networks business, which accounts for about one half of overall sales, and by 7% at the global services division, responsible for about 45% of the total. Ericsson flagged double-digit declines in the regions of North America, Latin America and Europe but witnessed growth in the Middle East, North East Asia and South East Asia.

Of particular concern was a decline in revenues from Ericsson's "targeted" areas, which represent about a fifth of total sales and are supposed to cover the parts of the business that are growing, such as cloud networks, TV and media services and IT systems. Revenues dropped by 7%, compared with the year-earlier period, after rising by 3% on a year-on-year basis in the third quarter. And across the full year, they were "flat." In its results statement, Ericsson blamed "lower sales in OSS [operational support systems] and BSS [business support systems] following the transition from legacy to new products," for the fourth-quarter decline.

One potential bright spot from both a sales and revenue perspective is a new radio platform simply branded Ericsson Radio System (ERS), which the Swedish vendor appears to regard as a critical step on the journey to 5G.

Designed partly to facilitate easier, software-based network upgrades in future, ERS accounted for about 15% of the total deliveries of radio units in 2016, but Ericsson sees the figure rising to 50% this year. That should help the company to improve its profitability, according to Carl Mellander, Ericsson's acting CFO.

"ERS is a key enabler to bring down the cost of sales and push gross margins up," he said. "It will have a positive impact on the service side because of the serviceability of the suite."

— Iain Morris, , News Editor, Light Reading