Ericsson accelerates restructure after losing $145m in second quarter

Alan Burkitt-Gray
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A year after Vestberg was fired, successor reports even worse second-quarter results from Ericsson

Ericsson’s second-quarter operating losses were bigger than expected and the company is speeding up its cost-reduction plans.

CEO Börje Ekholm said this morning that the company made an operating loss of 1.2 billion kronor ($145 million), compared with 2.8 billion kronor profit in the same quarter a year ago.

It was the company’s second-quarter results in July 2016 that prompted Ericsson’s board to fire Ekholm’s predecessor, Hans Vestberg. 

“We are not satisfied with our underlying performance with continued declining sales and increasing losses in the quarter,” said Ekholm. “Execution of our focused business strategy is gaining traction. However, in light of current market conditions, we are accelerating the planned actions to reduce costs.”

Every region of the world provided bad news for Ericsson: the best results were flat annual growth in south-east Asia, Oceania and India, with decline in China “partly offset by growth in Japan and Korea”.

The Middle East and Africa was the worst for the company, with 17% year-on-year decline in revenue. There are “some, still limited, signs of recovery in [the] macroeconomic environment”, said Ericsson.

Europe and Latin America both showed an 11% decline, with “continued reduced mobile broadband investments”. There was a “slowdown in Mexico”, but “growth in Brazil”. North America fell 7%, partly because a managed services contract was reduced in scope.

Ekholm, who was named as president and CEO in October last year but took office in January, said he expects “a high single-digit percentage decline” in the market for the radio access network equipment market “for the full year 2017”. Ericsson’s share price dropped 11% on the news, valuing the company at just 180 billion kronor ($21 billion).

He said that Ericsson is reviewing its managed services contracts and has identified 42 contacts, with sales of more than $800 million, “which we will either exit, renegotiate or transform”. It has already “exited, renegotiated or transformed nine of these contracts”, with an annualised profit improvement of $17 billion.

Ekholm warned that IT and cloud “had another challenging quarter with significant losses”, and said: “Gross margin continued to be negatively impacted by large digital transformation projects.” He said: “Our IT and cloud business is of strategic importance as our customers are preparing for 5G and will digitalise their operations and invest in a future network architecture based on software-defined logic.”