News
Revenue, operating income plunge on weaker-than-expected network equipment sales.
Ericsson on Wednesday warned that third quarter revenue and earnings were significantly lower than expected, as economic weakness in some countries took its toll on equipment sales.
The Swedish kit maker published unaudited results for the three months to 30 September which showed revenue down 14% year-on-year to 51.1 billion kronor (€5.2 billion). Sales of network gear plunged 19% to SEK23.3 billion.
Gross margin narrowed to 28.3% from 33.9% in the third quarter of 2015, while operating income fell sharply to SEK300 million (€30.8 million) from SEK5.1 billion.
Ericsson will publish its audited third quarter results on 21 October.
"Our result is significantly lower than we expected, with a particularly weak end of the quarter, and deviates from what we previously have communicated regarding market development," said Ericsson CEO Jan Frykhammar, in a statement.
Ericsson said the decline in sales was driven primarily by economic weakness in Brazil, Russia and the Middle East, which affected network sales in those markets. Europe was also slow, due to the completion last year of mobile capacity upgrades.
"The negative industry trends have further accelerated," Frykhammar said.
It is a torrid time for Ericsson.
Last week, the company announced that it will cut 3,000 jobs in Sweden – primarily at its last two remaining manufacturing plants there – as part of its aggressive cost-cutting programme.
In 2014, Ericsson said it aimed to cut total annual costs by SEK9 billion by 2017, with half of those savings generated by reductions in operating expenses. On 19 July this year, Ericsson doubled the opex portion of its savings target.
"Continued progress in our cost reduction programs did not offset the lower sales and gross margin," said Frykhammar, who replaced Hans Vestberg as chief executive in July.
"More in-depth analysis remains to be done but current trends are expected to continue short-term," he continued. "We will continue to drive the ongoing cost programme and implement further reductions in cost of sales to meet the lower sales volumes."
