IT and cloud plus media push Ericsson to $1.4bn quarterly loss

Alan Burkitt-Gray
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Losses on two divisions account for $1.3bn of total quarterly loss, as CEO Ekholm says performance ‘unsatisfactory’

Ericsson lost the equivalent of $1 billion on its IT and cloud operations in the first quarter and another $320 million on its media business. These two divisions accounted for a huge slice of the $1.4 billion (12.3 billion kronor) that Ericsson lost in the quarter, compared with a profit of 3.5 billion kronor in the same quarter last year. 

“Our performance in the first quarter continued to be unsatisfactory,” said president and CEO Börje Ekholm. He said Ericsson is keen to remain in IT and cloud but he was more cautious about the media division.

“IT and cloud remains a strategic area for Ericsson as our customers will digitalise their operations and invest in a future network architecture based on software-defined logic,” said Ekholm. “However, our performance in this area is not acceptable and the new management team is initiating actions to turn the business around.”

The company is exploring “strategic opportunities “ for the media operation – partly formed of Ericsson’s 2013 acquisition of Microsoft Mediaroom and Red Bee Media, bought in 2014 from a spin-off from UK public broadcaster BBC.

He did not say what those opportunities were but said: “The accelerated losses in Media were caused by a faster than anticipated decline in legacy product sales, not offset by growth in the new portfolio.”

Ekholm said that he wanted to all media “to scale and succeed in the evolving media landscape” .

He also expressed doubts over Ericsson’s IT cloud infrastructure hardware business. “We are seeking alternatives” for it, he said, “to gain necessary scale to ensure that we can offer competitive solutions to our customers. Tangible improvements in profitability are expected during 2018.”

But he warned that there will be more bad news to come, partly thanks to the company’s decision to “re-focus” its activities in managed services and network roll-out. “Full-year sales are expected to be negatively impacted by up to 10 billion kronor by 2019,” he said: equivalent to $1.1 billion.

Overall sales were down by 11% on the quarter, compared with the same quarter of 2016. Gross margin was down from 33.3% to 13.9%. Ericsson ended the quarter with net cash of 28.3 billion kronor ($3.22 billion), compared with 36.5 billion kronor a year ago.

“The immediate priority is to improve profitability while also taking action to revitalise technology and market leadership,” said Ekholm.