Eric­s­son sends a note to self

This is about value cre­ation and the long game – there’s no easy quick-fix

The Star Early Edition - - INTERNATIONAL - Ni­clas Rolan­der

ERIC­S­SON yes­ter­day cau­tioned that turn­ing around the be­lea­guered phone-equip­ment maker would re­quire even steeper cost cuts, test­ing the pa­tience of in­vestors who sent the stock tum­bling the most this year.

Eric­s­son fell as much as 11 per­cent to 54 kro­nor (R84.34) in Stock­holm af­ter the com­pany posted a sec­ond-quar­ter loss and warned that a fal­ter­ing mar­ket amid tech­nol­ogy shifts could cause as much as 5 bil­lion kro­nor of op­er­at­ing in­come to evap­o­rate over the next 12 months.

“We’re three months into the strat­egy,” chief fi­nan­cial of­fi­cer Carl Mel­lan­der said in an in­ter­view. “I think you should have pa­tience be­cause this is about value cre­ation and the long game. There is no quick fix, this is about strate­gic work and a repo­si­tion­ing of the com­pany.”

Chief ex­ec­u­tive Borje Ekholm, who took the helm in Jan­uary, is un­der pres­sure from ac­tivist in­vestor Chris­ter Gardell to de­liver a speedy turn­around. His plan hinges on re­duc­ing costs and scal­ing back ex­pan­sion plans that have not panned out, while re­fo­cus­ing on Eric­s­son’s core busi­ness of sell­ing net­work­ing equip­ment ahead of the ex­pected roll-out of 5G net­works. Gardell’s fund Ce­vian has ac­quired a 6.5 per­cent stake in the com­pany since March.

Ac­cel­er­at­ing

“We are not sat­is­fied with our un­der­ly­ing per­for­mance with con­tin­ued de­clin­ing sales and in­creas­ing losses,” Ekholm said yes­ter­day. “In light of cur­rent mar­ket con­di­tions, we are ac­cel­er­at­ing the planned ac­tions to re­duce costs.”

Eric­s­son’s closely watched ad­justed gross mar­gin shrank by 3.4 per­cent­age points from a year ear­lier to 29.8 per­cent in the sec­ond quar­ter. The com­pany swung to a net loss of 1 bil­lion kro­nor from a profit of 1.59 bil­lion kro­nor a year ear­lier.

The com­pany said it would ac­cel­er­ate cost cuts over a pre­vi­ously set goal to achieve an an­nual run-rate re­duc­tion of at least 10 bil­lion kro­nor by mid2018. Ekholm said Eric­s­son had iden­ti­fied 42 ser­vice con­tracts that the com­pany would exit, rene­go­ti­ate or trans­form. The com­pany has hired banks to re­view a pos­si­ble sale of its me­dia hold­ings, peo­ple fa­mil­iar with the mat­ter said in June.

In 2016, Eric­s­son’s sales de­clined by 9.8 per­cent, and the com­pany yes­ter­day said it ex­pected a “high sin­gle-digit per­cent­age” drop in the mar­ket for ra­dio ac­cess net­works this year, a big­ger fall than pre­vi­ously ex­pected.

“There is a change in en­vi­ron­ment,” Ekholm said on a con­fer­ence call. “We see a more chal­leng­ing in­vest­ment en­vi­ron­ment in Europe and Latin Amer­ica. That’s clearly the mar­ket ar­eas with the big­gest im­pact.

“But the mar­ket con­di­tions have been tough,” Ekholm said. “It’s quite clear that we need to im­prove our own ef­fi­ciency.” – Bloomberg

PHOTO: BLOOMBERG

Borje Ekholm, chief ex­ec­u­tive of Eric­s­son, says tough mar­ket con­di­tions war­rant steeper cost cuts to turn around the be­lea­guered phone equip­ment maker and wants the com­pany to im­prove its own ef­fi­ciency.

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