Ericsson Sinks on North American Slowdown

Ericsson's share price has tumbled in early-morning trading in Stockholm after the equipment vendor revealed it had been hit by a slowdown in North American business and a sharp rise in expenses during the first three months of the year.

The company's share price fell by around 9.5% on the Stockholm Stock Exchange after it published figures showing a 17% year-on-year fall in net income, to 1.5 billion Swedish kronor ($170 million), and warned of further weakness ahead.

Although revenues grew by 13%, to SEK53.5 billion ($6.13 billion), they were flattered by what CEO Hans Vestberg described as "unheard-of" movements in foreign exchange rates and fell by 6% in local currency terms.

Table 1: Ericsson Headline Results (SEK M)

Q1 2015 Q1 2014 YoY change
Revenues 53,520 47,505 13%
−networks 26,436 24,383 8%
−global services 23,901 20,356 17%
−support solutions 3,074 2,765 11%
−modems 109 1 10800%
Gross margin 35.4% 36.5% -1.1 percentage points
Operating margin 4.0% 5.5% -1.5 percentage points
Net income 1,454 1,692 -14%
Source: Ericsson

Ericsson AB (Nasdaq: ERIC) pointed the finger of blame at stagnation in North America's mobile broadband market and indicated this would remain a weak spot in the immediate future.

Profits suffered after Ericsson incurred about SEK600 million ($68.7 million) in restructuring charges, up from SEK100 million ($11.5 million) in the same period last year, and restructuring is expected to cost another SEK2 billion ($230 million) in the April-to-June quarter.

Those costs are related to the recently announced plan to cut 2,200 Swedish jobs, representing about 2% of Ericsson's global workforce and 13% of its employee base in Sweden. (See Ericsson to Cut 2,200 Swedish Jobs.)

In its latest earnings report, Ericsson said restructuring would additionally affect about 850 "consultants" and that savings would start to kick in towards the end of the year.

Despite the currency boost, revenues from North America remained static, at SEK12.2 billion ($1.4 billion), compared with the first three months of 2014, and were 6% lower than in the October-to-December quarter.

North America remains by far Ericsson's biggest regional market, generating nearly 23% of its overall sales, although the share was down from almost 26% in the first three months of 2014.

US operators have been slashing investments after spending an eye-watering $45 billion on new frequency licenses during the recent auction of AWS-3 spectrum. Vestberg also blamed consolidation among operators for the squeeze and said there could be more of this in the coming months. (See FCC's Monster Auction Ends at $45B in Bids.)

Next page: Asian boost

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aamir786 8/13/2019 | 2:04:57 AM
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