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Ericsson headquarters. Image courtesy of Ericsson.

Ericsson’s Continued Fall Could Attract Acquirers

Oct 21, 2016

Telecommunications equipment maker Ericsson disclosed last week that its third quarter results wouldn't meet analyst expectations, sending the company's shares tumbling 20%.

On Friday, Ericsson released its actual results, and the details were troubling enough to prompt another 5% sell off. Operating profit declined 93% from a year ago as revenue fell 14%.

Acting CEO Jan Frykhammar blamed overall market conditions for the lower sales. Some developing countries such as Brazil and Russia have cut back on telecom spending due to economic weakness. And in Europe and the U.S., many carriers are curbing spending on equipment after having completed building 4G networks while next generation 5G gear won't be ready to deploy for several more years.

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"We are a little bit caught between the G's," Frykhammar told Fortune on Friday. He doesn't foresee much improvement for the next six to nine months, at least, and is therefore planning additional layoffs and cost cutting in the interim.

Ericsson's thesis of widespread weakness, as opposed to a company specific problem, will be tested next week. Rival equipment maker Nokia (nok) reports its third quarter results on Oct. 27. Analysts expect a modest increase in sales.

If the overall telecom market is in the dumps for the foreseeable future, that may prompt yet another round of consolidation. Frykhammar doesn't agree, saying "it's a pretty consolidated market the way it is."

For more about a 5G group Ericsson joined, watch:

But there is little doubt that some big players beyond the market that Frykhammar is focused on might like to pick off one or more of the remaining telecom equipment makers. Analysts mention Cisco Systems (csco) and Samsung Electronics as possible buyers, as the current weakness crushes stock prices and makes possible targets like Ericsson (eric) ever cheaper to acquire.

Frykhammar took the top job at Ericsson after the company's board ousted Hans Vestberg in July. A search is underway for a permanent replacement, and Frykhammar declined to provide any details about that process on Friday.

But that search may become moot. If things continue on the current downward track, a takeover might happen sooner.

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