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Ericsson Under Crisis As Profits Plunge 94%

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Ericsson Under Crisis As Profits Plunge 94%

One of the world’s largest manufacturer of telecom equipment, Ericsson reported a 94% drop in quarterly operating profit yesterday. The company missed the analyst’s forecast for a fifth straight quarter and also said that it saw no sign of a fast revival.

Ericsson said in a statement its third-quarter operating income plunged to 300 million Swedish crowns ($34.8 million) from 5.1 billion crowns a year ago, including restructuring charges of 1.3 billion crowns. Sales dropped 14 percent to 51.1 billion crowns, including an almost 20 percent drop in its core networks division. Analysts’ mean forecasts were for operating income of 4.3 billion crowns and sales of 53.6 billion.

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The Swedish networking equipment giant is facing stiff competition from Nokia and Huawei. Ericsson was in news recently for cutting thousands of job and the company’s CEO Hans Vestberg was recently asked to leave.

The sales decline was mainly driven by markets with weak macro-economic environment such as Brazil, Russia and the Middle East, impacting both coverage and capacity sales in those markets. In addition, capacity sales in Europe were lower following completion of mobile broadband projects in 2015, says the press note issued by the company.

Jan Frykhammar, President and CEO says: “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. The negative industry trends have further accelerated affecting primarily Segment Networks. Continued progress in our cost reduction programs did not offset the lower sales and gross margin. More in-depth analysis remains to be done but current trends are expected to continue short-term. We will continue to drive the ongoing cost program and implement further reductions in cost of sales to meet the lower sales volumes.”

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