Ericsson ex­tends time to reach tar­get; Ce­vian calls for more cost cuts

Business World - - WORLD BUSINESS -

STOCK­HOLM — Mo­bile net­work equip­ment maker Ericsson pushed back the date it would hit its profit mar­gin tar­get by two years on Wed­nes­day, damp­en­ing hopes of a quick re­cov­ery and prompt­ing one of its main share­hold­ers to call for deeper cost cuts.

Ce­vian Cap­i­tal owns 7.3% of Ericsson shares and is Ericsson’s big­gest owner by cap­i­tal.

“We are dis­ap­pointed that Ericsson ex­tended the time hori­zon for reach­ing its mar­gin tar­gets,” Chris­ter Gardell, man­ag­ing part­ner at ac­tivist in­vestor Ce­vian Cap­i­tal, wrote in an e- mail to Reuters.

“We want to see a sig­nif­i­cantly in­creased ex­e­cu­tion pace and a higher am­bi­tion for cost re­duc­tions.”

Shares in the Swedish com­pany fell more than 3% on Wed­nes­day after it said it did not ex­pect to reach its op­er­at­ing mar­gin tar­get of 12% un­til after 2020.

STRONG CROWN

It blamed a stronger Swedish crown against the US dol­lar and weaker de­mand for its equip­ment as it scrapped a tar­get it re­it­er­ated less than three weeks ago — al­though in­vestors had doubted it would hit the pre­vi­ous dead­line of 2018.

“The rea­son is forex ... The next is we see the end mar­ket weaker than we thought at the time,” Chief Ex­ec­u­tive Borje Ekholm told in­vestors at a cap­i­tal mar­kets day in New York.

Once the world’s big­gest maker of mo­bile net­work equip­ment, Ericsson has been hit by com­pe­ti­tion from China’s Huawei and Fin­land’s Nokia as well as fall­ing spend­ing by tele­coms op­er­a­tors, with de­mand for next-gen­er­a­tion 5G tech­nol­ogy still years away.

The com­pany has said it plans to cut costs by at least 10 bil­lion crowns from the mid­dle of next year, turn around its man­aged ser­vices busi­ness and carry out a strate­gic re­view of its loss-mak­ing me­dia as­sets.

Ericsson said it was now aim­ing for an op­er­at­ing mar­gin ex­clud­ing re­struc­tur­ing costs of at least 10% by 2020, with Mr. Ekholm say­ing it pre­ferred to be cau­tious rather than bank on its turn­around ef­forts be­ing suc­cess­ful across the board.

But Red­eye an­a­lyst Greger Jo­hans­son said a new gross mar­gin tar­get of 3739% by 2020 was still above mar­ket ex­pec­ta­tions. It com­pares with 30% in the com­pany’s third- quar­ter re­sults.

Those re­sults, pub­lished in Oc­to­ber, marked Ericsson’s fourth con­sec­u­tive loss-mak­ing quar­ter.

Ericsson also said on Wed­nes­day it was tar­get­ing sales of 190- 200 bil­lion crowns ($22.6-$23.8 bil­lion) by 2020.

“Our job and com­mit­ment is to re­build Ericsson to be suc­cess­ful long term,” Mr. Ekholm said. “Near term we will pri­or­i­tize prof­itabil­ity over growth.”

Ericsson’s shares, which are roughly flat so far this year and down by nearly 40% in the past two years, closed 3.3% lower at 52.75 crowns. —

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