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Vendor expects weaker than normal sales growth in Q4, says revenue will take a hit from a scaled-down services contract in North America.
The gloom surrounding Ericsson shows no signs of abating, after the vendor on Friday said it expects weaker than normal sales growth going into the fourth quarter.
The downbeat outlook came as the Swedish kit maker announced it swung to a net loss during the third quarter.
Ericsson has been struggling lately as economic weakness in Latin America, Russia, the Middle East, and Sub-Saharan Africa has taken its toll on sales of network equipment.
"This negative development accelerated in the third quarter and had a negative effect on both mobile broadband coverage and capacity sales in these markets. In addition, capacity sales in Europe were lower than a year ago," explained Jan Frykhammar, acting CEO of Ericsson, in a statement.
"The current industry trends indicate a somewhat weaker than normal seasonal sales growth between the third and fourth quarters," he continued. "In addition a renewed managed services contract in North America, with reduced scope, will impact sales negatively."
After issuing a third-quarter profit warning last week, Ericsson published full quarterly results that showed it swung to a net loss.
As previously disclosed, revenue for the three months to 30 September was down 14% to 51.1 billion kronor (€5.2 billion).
Sales of network equipment fell 19% to SEK23.3 billion, while services sales were down 8% to SEK24.8 billion. Lower OSS and BSS sales led to sales at Ericsson’s Support Solutions business falling 11% to SEK2.9 billion.
On a regional basis, India saw the steepest revenue decline, falling 28% year-on-year to SEK2.6 billion, as the recently-conducted spectrum auction pushed back mobile broadband investments. Sales in the Middle East and Africa both fell by 25%, while Latin America was down 22%. Sales in Western and Central Europe fell by 21%.
North America, Ericsson’s biggest region by revenue, was down 8% to SEK13.2 billion due to lower sales of professional services, while its second-largest region, north east Asia – which includes China, Korea, and Japan – saw sales fall 4% to SEK6.1 billion.
"Sales were particularly weak at the end of the quarter," said Frykhammar, which indicates an acceleration of the "negative industry trends."
Ericsson’s closely watched gross margin narrowed to 28.3% from 33.9% in Q3 2015. Operating income fell sharply to SEK300 million from SEK5.1 billion a year ago.
Ericsson swung to a net loss of SEK200 million from a year earlier net profit of SEK3.1 billion.
Ericsson is in the midst of an aggressive cost-cutting programme, and as part of that programme, the company recently announced that 3,000 redundancies will be made in Sweden.
On Friday, Frykhammar said further short-term action will be taken, "mainly to reduce cost of sales, in order to adapt our operations to weaker mobile broadband demand."
