Ericsson shares soar despite $590M net loss in Q3

Ericsson sign
Ericsson shares jumped more than 9% after the company posted third-quarter results.

Ericsson shares soared this morning even after the company posted another quarter of waning sales and increasing losses.

The venerable Swedish gear vendor said revenue fell 6% year over year during the third quarter to $5.9 billion, marking its fourth straight quarterly loss. Its net loss came in at $590 million, significantly worse than the $24.5 million net loss it posted last year, and network sales dropped by 4% year over year.

“The general market conditions continue to be tough,” CEO Borje Ekholm said in a press release. “Sales in mainland China declined as the market is normalizing following a period of significant 4G deployments, representing more than 60% of global 4G volumes in the industry. We have managed to increase our LTE market shares in mainland China to position Ericsson in 5G. However, this will have a dilutive effect on gross margin in mainland China in Q4 2017, but the ambition is to continue to deliver double-digit adjusted operating margin in networks in Q4 2017.”

Like its rival infrastructure vendors, Ericsson is struggling as carriers around the world plot their transitions from 4G to 5G. The company posted an operating loss of $145.3 million in the second quarter of 2017, marking a dramatic reversal from the $338.2 million profit it posted during the same period a year ago, and in March it unveiled plans to streamline its operations by combining products and services and upping its investments in both R&D and “services capabilities” in several core areas.

Earlier this year, the company announced that Rima Qureshi, senior vice president and head of Market Area North America, had left the company.

Investors apparently were buoyed by Ericsson’s commitment to restructure its business, though, as shares soared more than 9% in mid-day trading.

“We now expand our focus to improve profitability through increased efficiency in service delivery. In addition, we will scale the software part of the business mix and increase the level of pre-integration services, which will lead to a higher gross margin but lower services sales. Positive effects on gross margin are expected in 2018,” Ekholm said. “We remain fully committed to our focused business strategy. We continue to invest to secure technology leadership and year to date we have recruited more than 1,000 R&D employees in Networks. Customers give positive feedback on both our long-term strategy and on our current 5G-ready portfolio.”