Zacks identifies risks to Ericsson's top line ahead of Q2 earnings announcement

Ericsson received a mixed second-quarter earnings forecast from Zacks, which noted that the infrastructure vendor faced key challenges including rising restructuring costs and a drop in sales in key markets during the period.

The independent investment research company warned in a blog that Ericsson's profitability in the second quarter could be impacted by higher operating expenses, which it noted are mostly related to a restructuring programme Ericsson is conducting.

Zacks pointed out that the vendor increased its forecast for restructuring charges in 2016 in its first quarter earnings statement: from a range of between SEK3 billion (€317 million/$350 million) and 4 billion, to between SEK4 billion and 5 billion.

Zacks also noted that Ericsson's sales could weigh down its Q2 2016 earnings, which the vendor is due to report on Jul. 19.

The company stated that Ericsson "has been witnessing sluggish mobile broadband sales in key markets like North America and India," and that the vendor is also exposed to a "slowdown in 4G deployments in China".

Other factors that could have affected Ericsson's sales during the second quarter include "delays in spectrum auctions and spectrum trading deals" and "unimpressive investments in other key markets that can mar the company's top line", Zacks noted.

Ericsson's sales in the first quarter of 2016 were down 2 per cent year-on-year at SEK52.2 billion. CEO Hans Vestberg at the time explained that the drop was due to a weak macro-economic environment in some of Ericsson's markets, and lower sales in Europe where the company had completed mobile broadband projects.

Zacks highlighted that Ericsson's second quarter top line is also at risk due to "weakening currencies across key markets in Latin America" and a slowdown in "investments in regions including Mediterranean, Northern Europe and Central Asia (especially Russia).

Additional risks to Ericsson's earnings include "stiff competition, spectrum crunch and net neutrality," Zacks explained.

On the flip side, Zacks noted that Ericsson's "leading market share in LTE technology, strengthening foothold in the broadcasting and media industry and ongoing global cost an efficiency programs" could offset some of the challenges to its second quarter earnings.

The vendor "also stands to benefit significantly as operators across the global are focusing to improve their OSS and BSS solutions," Zacks noted, pointing to deals Ericsson secured during the second quarter with operators including Makedonski Telekom in Macedonia and Oman's Omantel covering managed services, and a revenue management deal with T-Mobile Czech Republic.

For more:
- see this Zacks blog

Related articles:
Ericsson, Huawei, Nokia extend OSS interoperability agreement
Ericsson: Vodafone Ireland 4G network upgrade delivers fastest LTE uplink rates in Europe
Ericsson reveals separate 5G developments with Vodafone, Deutsche Telekom
Ericsson unveils '5G for Germany' initiatives to address industrial use cases
Ericsson grows profits despite marginal revenue decline in Q1 2016

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