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Swedish kit maker expects no improvement in market trends in second half of 2016.
Ericsson on Tuesday doubled its cost-cutting target as second-quarter sales fell on economic weakness in some markets and lower spending on mobile broadband networks in others.
The Swedish kit maker had previously targeted reducing costs by 9 billion kronor (€949.5 million) per year by 2017. On Tuesday Ericsson said it will cut R&D investments in intellectual property and capture efficiency gains from the new company structure that was unveiled in April and implemented on 1 July in a bid to make further savings.
Taken together these activities equate to "double the previously-targeted savings in operating expenses," said Ericsson CEO Hans Vestberg, in a statement.
The focus on costs comes after Ericsson reported Q2 sales of SEK54.1 billion, down 11% year-on-year.
"The negative industry trends from the first quarter have intensified impacting demand for mobile broadband," Vestberg said.
Specifically, macro-economic weakness in Brazil, Russia and the Middle East, and the completion of mobile network upgrades in Europe have weighed on Ericsson’s results. The performance in China and North America was more stable thanks to ongoing 4G deployments in the former, and capacity upgrades in the latter.
At Ericsson’s networks business, revenue in the three months to 30 June fell 14% year-on-year to SEK26.8 billion. At its services division, revenue fell to SEK24.5 billion from SEK26.4 billion. Ericsson’s support solutions business saw revenue fall 7% to SEK2.9 billion from SEK3.1 billion a year earlier.
Ericsson’s closely-watched gross margin narrowed to 32.3% from 33.2%, as its services business and the lower-margin parts of its hardware portfolio accounted for a larger share of overall revenue.
Ericsson’s second-quarter net income fell 26% year-on-year to SEK1.6 billion.
"The current sales trends and business mix are expected to prevail for the second half of the year," Vestberg warned, adding that in addition to the aforementioned cost-cutting plan, Ericsson will also look to lower cost of sales and adapt to the weaker market.
"I am confident that our strategy and the actions we now take will create future value for our shareholders," he said.
