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Ericsson Shares Plunge After Massive Profit Shortfall

October 12, 2016, 7:42 AM UTC
Ericsson AB Results News Conference
The logo of Ericsson AB is seen outside the company's headquarters in Stockholm, Sweden, on Thursday, July 21, 2011. Ericsson AB, the largest maker of wireless networks, reported profit that missed analysts' estimates on slower services growth and bigger-than-anticipated job-cut costs, sending the stock to its biggest drop since 2009. Photographer: Casper Hedberg/Bloomberg via Getty Images
Photograph by Casper Hedberg — Bloomberg via Getty Images

Ericsson, the world’s biggest maker of mobile network equipment, said on Wednesday its third-quarter profit plunged to just a fraction of analysts’ forecasts, with sales in its core networks division slumping nearly 20%.

In morning trading, Ericsson shares dropped more than 18% to their lowest point since 2008.

The warning deals another blow to the Swedish firm which is firing thousands of staff as it battles a downturn in demand and stiff competition from Finland’s Nokia and China’s Huawei.

Ericsson (ERIC), whose shares are down 25% so far this year, has also been without a permanent CEO since late July when Hans Vestberg was ousted following months of criticism over his leadership and pay.

The company has come under fire for failing to address falling sales in its key line of business—telecoms equipment for mobile operators—and for being slow to cut costs and adapt its strategy.

It said in a statement its third-quarter operating income fell 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% to 51.1 billion crowns.

Analysts’ mean forecasts were for operating income of 4.3 billion crowns and sales of 53.6 billion.

“Our result is significantly lower than (what) we expected, with a particularly weak end of the quarter, and deviates from what we previously have communicated regarding market development,” said acting Ericsson CEO Jan Frykhammar.

“More in-depth analysis remains to be done but current trends are expected to continue short-term.”


Ericsson said the sales decline was mainly driven by markets with a weak macro-economic environment such as Brazil, Russia and the Middle East. Sales in Europe were also hit due to the completion of mobile broadband projects in 2015.

Ericsson started as a producer of telegraph and telephone equipment in 1876 and grew to be the world’s biggest producer of mobile telecoms equipment.

But with demand for mobile infrastructure in developed markets stagnating, it has been turning its focus to faster-growing areas such as IP- and cloud-based communication and services for new industrial customers in a bid to boost sales.

Still, many in the industry say it faces an uphill task to catch up with Nokia (NOK) and Huawei which are stronger in areas such IP-based communication.