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Ericsson Profits Plunge 94 Percent Deepening its Crisis

Ericsson Profits Plunge 94 Percent Deepening its Crisis
Tumbling sales at Ericsson’s core networks division and a 94 percent plunge in quarterly operating profit deepened the crisis at the world's biggest maker of mobile network equipment. The company reported the profit plunge percentage on Wednesday.
After the Swedish company missed analysts' forecasts for a fifth straight quarter and said it saw no signs of a quick upturn, shares in the company dropped more than 15 percent in early trading.
Stiff competition from Finland's Nokia and China's Huawei, with the former boosted by radical cost cutting following its merger with Alcatel and weak demand for mobile network equipment in developed markets are the reasons that Ericsson is struggling with growth.
The Swedish firm has come under fire from analysts and investors for being too slow to respond even as it is now also cutting thousands of jobs. The company is still looking for a permanent replacement after Hans Vestberg was ousted at CEO in late July.
"It seems that the main reason was the important business area networks which deviated the most," research firm Redeye said of the profit slide.
"Combining the market development with the lack of a permanent CEO and a major cost reduction program, there are the few things to be happy about," it said in a research note.
From 5.1 billion crowns a year ago and including restructuring charges of 1.3 billion crowns, Ericsson said in a statement its third-quarter operating income plunged to 300 million Swedish crowns ($34.8 million). Including an almost 20 percent drop in its core networks division, sales dropped 14 percent to 51.1 billion crowns.
Analysts' mean forecasts were for 53.6 billion and operating income of 4.3 billion crowns.
"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," said acting Ericsson CEO Jan Frykhammar.
"More in-depth analysis remains to be done but current trends are expected to continue short-term."
Markets with a weak macro-economic environment such as Brazil, Russia and the Middle East were the ones that primarily drove the sales decline, Ericsson said. and since the completion of mobile broadband projects in 2015, sales in Europe were also significantly hit.
After hitting an eight-year low of 50.50 crowns, Ericsson shares were down 16.7 percent at 51.65 crowns. The stock has fallen around 37 percent so far this year.
"Unless Ericsson can provide a solid explanation to why the gross margin should rebound during early parts of 2017 and why the market should pick up ... we see clear risk that the share will come down sub 50 crowns as estimates will have to come down heavily and (the) dividend likely will have to be cut," SEB analysts said

Christopher J. Mitchell

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