Ericsson misses analyst estimates in Q3 as networks sales decline

Ericsson reported sales and profits that were below analyst forecasts for the third quarter of 2015, as the company grappled with lower sales in its networks business caused in part by a slowdown in 4G deployments in China.

The Sweden-based vendor said revenue reached SEK59.2 billion (€6.3 billion/$7 billion), which was 3 per cent higher year-on-year on a reported basis but 9 per cent lower when adjusted for comparable units and currency. Reuters said sales missed a forecast of SEK60.9 billion in its poll of analysts, while Bloomberg also noted that sales missed an average estimate of SEK60.7 billion.

Operating income increased by 31 per cent to SEK5.1 billion while net income was up 19 per cent at SEK3.1 billion. However, Reuters said the operating profit was below a mean forecast of SEK5.4 billion in its poll of analysts. The news agency also said the gross margin of 33.9 per cent including restructuring charges was lower than a mean forecast of 34.9 per cent.

Bloomberg also said the gross margin of 34.5 per cent excluding restructuring charges was lower than analyst predictions of 35.3 percent, which is the average of estimates compiled by the news agency.

Networks accounted for SEK28.8 billion of total revenue, down 4 per cent on a reported basis. Ericsson said the lower sales in its networks business were partly offset by growth in professional services, which increased sales by 15 per cent year on year.

The decline in networks was caused by a slowdown of 4G deployments in mainland China, although the company said it is in a good position to support customers here following the acquisition of China-based telecom IT services business Sunrise Technologies in March this year. Total sales in North East Asia dropped 10 per cent year on year on a reported basis to SEK6.3 billion.

Ericsson also saw a somewhat slower pace of mobile broadband investments in markets such as Russia, Brazil and parts of the Middle East. It added that the mobile broadband business in North America remained stable on a sequential basis, but the company said investment levels were at a lower level compared to the same period last year as operators continued to focus on cash flow optimisation and consolidation. North America is a crucial region for the company, accounting for SEK14.4 billion of third-quarter revenue.

Business remained strong in India as well as in South East Asia and Oceania compared to the same period last year, while sales declined in Northern Europe and Central Asia, Ericsson added.

Looking ahead, the vendor said it plans to build on its core business while establishing a leadership position in targeted growth areas. One such area is TV and media, while future growth segments also include 5G, virtualisation, video delivery and the Internet of Things (IoT).

"With our ongoing strategic initiatives, we are well positioned to create value for our customers and shareholders in a transforming market," the company said.

Ericsson further noted that its global cost and efficiency programme, with a target to achieve annual net savings of SEK9 billion during 2017, is progressing according to plan. The company said in March this year it would cut 2,200 jobs in its native Sweden.

For more:
- see the Ericsson Q3 results
- see this Reuters article
- see this Bloomberg article

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