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Ericsson Suffers in North America, to Cut Costs Further

Ericsson Suffers in North America, to Cut Costs Further

By Reuters | Updated: 21 October 2016 17:51 IST

Sweden's Ericsson said sales in North America, its biggest market, had fallen in the past three months, identifying another of its weaknesses after the mobile telecom equipment maker's dramatic profit warning last week.

The company, the world's biggest maker of mobile network equipment, also said it would introduce further cost-cutting to deal with a weaker mobile broadband market.

Ericsson shocked investors last week when it issued the profit warning - indicating a plunge of more than 90 percent in quarterly operating profit and tumbling sales.

The Swedish company is struggling with a drop in spending by telecoms companies, with new 5G technology still years away, and facing stiff competition from Finland's Nokia and China's Huawei.

The 8 percent reduction in North American sales was the second consecutive quarter of falls and was worse than expected, according to a SEB research note.

That decline was mainly due to lower sales in Professional Services - the business that supports and helps maintain networks.

Sprint Corp, operator of the fourth largest US mobile network, renegotiated a managed services contract with Ericsson in July, cutting its value by around 50 percent after the previous $5 billion, 7-year agreement expired.

US sales were also dragged down by one customer's lower spending on mobile broadband, the company said, without giving details.

Ericsson had said last week that sales fell most in markets with weakening economies such as Brazil, Russia and the Middle East. Sales in Europe were hit by the completion of mobile broadband projects in 2015.

Adding to its troubles, the company has been without a permanent CEO since ousting Hans Vestberg in July.

Weak market
Ericsson shares, which plunged around 20 percent on last week's profit warning, hit 8-year lows on Friday, down by as much as five percent on news of the broad decline in sales across nearly all business areas, weak cash flow and a poor near term outlook.

Year-on-year sales declined in most regions, including Europe, India and mainland China - with the only exception being South East Asia and Oceania. But the company blamed the overall weak global market.

"In our view we have not lost market share, but this is market driven," acting CEO Jan Frykhammar told Reuters. Some analysts took issue with this, saying details in the poor company results showed specific problems for Ericsson.

Nokia is due to publish its quarterly results on October 27 when a broader picture of the market will emerge.

Nokia's third quarter revenue is seen at EUR 5.9 billion ($6.4 billion), up 3 percent on the previous quarter. Ericsson sales fell six percent from the previous quarter.

"We will implement further short-term actions mainly to reduce cost of sales, in order to adapt our operations to weaker mobile broadband demand," Frykhammar added in a separate statement.

Having been slower to cut costs than recently merged rivals Nokia and Alcatel Lucent, Ericsson has now announced plans to axe thousands of jobs, but analysts said third-quarter results showed the challenges facing the firm as it looks for a new leader.

There was no update on the search for a permanent CEO. The company could try to hire a chief executive with no track record in the telecoms industry after looking beyond the obvious candidates.

Ericsson's operating profit in the quarter fell to SEK 0.3 billion ($33.7 million) from SEK 5.1 billion a year ago, a 93 percent fall, while sales dropped 14 percent to 51.1 billion, the company confirmed on Friday.

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Ericsson Suffers in North America, to Cut Costs Further

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