Ericsson posts first net loss in four years
E ricsson
AB reported its first loss in almost four years, wrapping up a disastrous third quarter that cratered the stock last week when the Swedish maker of wireless equipment reported preliminary figures.
The net loss totalled 233 million kronor ($26 million), the company said in a statement yesterday. The average analyst estimate was for a loss of 112 million kronor.
Ericsson surprised investors last week, reporting a 14% drop in third-quarter sales, and warning that its full results would “significantly” trail its forecasts.
The company, which ousted its chief executive officer in July, has been muddling through an industry slump that’s cut deeper than it expected as competition from China exacerbated a cyclical downturn.
After the latest shock, Moody’s Investors Service downgraded the company’s debt, and it has yet to find a new CEO.
“Ericsson suffers from a bloated cost base, major dysfunctions and an empty CEO seat,” Pierre Ferragu, an analyst at Bernstein, said in a note to clients. “However, the company’s market position remains strong.’’
The crisis has uncharacteristically, if briefly, drawn out Ericsson’s two biggest shareholders — and pillars of Swedish industry — Industrivarden AB and Investor AB, which both have made public comments on the situation.
This week the CEO of Investor AB, Johan Forssell, said the biggest priority “is finding a new CEO with the strategy chops to guide the company through the industry’s technology shifts.’’
Chief financial officer Jan Frykhammar took over for former CEO Hans Vestberg, but he has said he doesn’t want the job permanently and he restated that position yesterday.
Ericsson faces fierce competition from Huawei Technologies Co and Nokia Oyj that’s been compounded by slumping demand in some countries, notably Russia and Brazil. In response, the company is cutting costs to reduce its operating expenses by 10 billion kronor by 2017 compared with 2014.
“The negative industry trends from the first half of 2016 have further accelerated,” 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 said he didn’t anticipate an increase the company’s mobile network capacity business in the US and Japan in the short term, which could have helped offset the slump in Brazil and Russia.
“To support its credit ratings, Ericsson is likely to cut its dividend to preserve cash amid markets that Frykhammar has said aren’t likely to improve for at least several quarters,’’ Johanna Ahlqvist, an analyst at SEB, said last week.
He expects Ericsson to pay shareholders 1.50 kronor a share for 2016, down from the 3.70-krona dividend paid for last year.
The Stockholm-based company had only posted a quarterly loss once in the last decade, in the fourth quarter of 2012, after taking a eight billion kronor writedown on its wireless-chip alliance with STMicroelectronics NV.