Struggling Swedish kit maker reports 11% fall in revenue on weak mobile broadband demand.
Ericsson swung to a hefty net loss in the first quarter of 2017, as its previously-announced strategic overhaul led to writedowns and restructuring charges totalling SEK13.4 billion (€139 billion).
If that wasn’t bad enough, the Swedish kit maker saw worrying declines in revenue across its business areas.
SEK8.4 billion of the aforementioned charges related to additional costs incurred by the IT and Cloud division, as well as customer settlements and the revaluation of customer discounts, and the reassessment of trade receivables. Asset writedowns and restructuring charges accounted for the remaining SEK3.3 billion and SEK1.7 billion respectively.
"Our performance in the first quarter continued to be unsatisfactory," said Ericsson CEO Börje Ekholm, in a statement.
Indeed, revenue for the three months to 31 March fell to SEK46.4 billion from SEK52.2 billion in the corresponding quarter of 2016.
Ericsson’s Networks business struggled amid weak demand for mobile broadband equipment, particularly in Latin America, Africa and parts of Europe, with sales falling falling 13% year-on-year to SEK34.9 billion.
The IT and Cloud business saw sales fall 3% to SEK9.5 billion, as higher services revenue was unable to offset lower product revenue.
Meanwhile, revenue at the Media division fell 20% to SEK2 billion, driven by lower sales of legacy products, and lower IPR licensing revenues.
The combination of lower sales and various restructuring charges and writedowns resulted in Ericsson swinging to a SEK10.9 billion first quarter net loss, from a year-earlier profit of SEK2.1 billion.
In late March, Ericsson announced a major restructuring and changes to its leadership team in a bid to revitalise the business.
Under the plan, the company will organise into three business areas – Networks, Digital Services, and Managed Services, as it focuses more closely on network hardware, OSS/BSS solutions, the IoT, and related services.
Ericsson has launched a strategic review of its IT and cloud hardware divisions, as well as the media business.
"The strategy builds on reallocating resources and investments to core portfolio areas, fully leveraging the potential of 5G, IoT and cloud," Ekholm said on Tuesday.
Ericsson has been aggressively reducing costs as well, but it seems that steeper cuts are also in the pipeline.
"The existing cost and efficiency programme is not yielding sufficient results," Ekholm said. "Based on current profitability, we will intensify our efforts to reduce cost with focus on structural changes to generate lasting efficiency gains and increase cost competitiveness."
Looking ahead, Ericsson expects the RAN equipment market to contract by 2%-6% this year, and conditions in the mobile broadband market in 2016 to prevail this year.
The company warned that tackling low-performing operations in Managed Services and optimising its Network Rollout activities will wipe SEK10 billion off its net sales by 2019.
Restructuring charges for this year are expected to come in at SEK6 billion-SEK8 billion.