Ericsson Post Third-Quarter Loss on Slowing Demand

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Swedish telecommunications equipment company Ericsson on Friday revealed that it recorded a loss in the third quarter as a result of weak demand for its products and services.

For the quarter ended Sept. 30, Ericsson said in a statement that it recorded a net loss of 233 million Swedish kronor ($26.2 million), a massive reverse of the 3.08 billion kronor net profit posted in the same period a year ago.

The loss in the quarter was more than double what analysts had expected. Average estimate from analysts was for a 112 million kronor loss, according to Bloomberg.

Some investors were shocked last week when Ericsson issued an earnings warning on the basis of a 14-percent dive in third-quarter sales to 51.1 billion kronor, down from 59.2 billion kronor a year earlier. Its shares slumped by roughly 20 percent after that announcement.

Fall in sales of network equipment contributed significantly to the drop in revenue, the company said. Their sales were down by 19 percent.

The Swedish telecom equipment giant has been greatly hurt by the drop in mobile service providers’ spending on latest-generation 4G networks, with most upgrades already completed last year. Competition has also become more intense from Huawei Technologies Co. and Nokia Corp., with the former already making inroads into its domain in Europe.

Slumping demand in countries such as Russia and Brazil has had significant impact on Ericsson’s revenue. The company has been forced to embark on cost-cutting measures, including job cuts, to reduce operating expenses.

“The negative industry trends from the first half of 2016 have further accelerated,” Interim Chief Executive Jan Frykhammar said. “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 became Ericsson CEO after former holder Hans Vestberg was ousted in July for failing to improve on the performance of the company. The current holder has not kept it secret however that he does not want the job on a permanent basis, reiterating that on Friday.

Some analysts believe lack of a permanent chief executive is one of the major problems facing Ericsson. They think it might not be able to improve on its business challenges until it gets one.

Two of the company’s biggest investors Industrivarden AB and Investor AB have also commented on the empty CEO seat issue. Investor Chief Executive Johan Forssell stated this week that the main priority before the Swedish telecom equipment maker is to find a new chief executive, as reported by Bloomberg.

Ericsson shares, which were down about 49 percent this year, shed more than 3 percent on Friday.

Moody’s Investors Service has downgraded the debt of the company. Analysts say it may need to cut dividend to save cash and shore up its credit ratings.

It was only the second time in a decade that Ericsson has posted a loss. The first was in the four quarter of 2012 and was due to an 8 billion kronor write-down on the alliance with STMicroelectronics NV.

The Stockholm-based company has its sight set on the development of next-generation, 5G wireless networks. However, analysts say the rollout of the super-fast networks are still years away.

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