Ericsson Q3 business result to be 'significantly lower than expectations'

NEW DELHI: Ericsson has announced that the business result for the third quarter 2016 will be significantly lower than company expectations. The negative industry trends from the first half of 2016 have further accelerated, impacting Q3, 2016 numbers primarily in Segment Networks.

The Swedish kit maker published unaudited results for the three months to 30 September which showed revenue down 14% year-on-year to SEK51.1 billion ($5.8 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 ($34.8 million) from SEK51.1 billion.

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," the company said in its statement.

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."

Last week, the company said 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.

Ericsson will publish its audited third quarter results on 21 October.