Shares in Ericsson SA (ERIC) plummeted over 15 percent after the company missed second-quarter earnings consensus. The Swedish telecom gear maker posted lower-than-expected Q2 earnings on Tuesday and warned that its bottom line can be affected by as much as $600 million next year due to weaker market conditions.
Shares dropped more than 8.7 percent during the first 30 minutes of trading in Stockholm, Sweden at SEK 55.54, canceling out all of the stock’s gains over the past three months.
The company’s net sales for Q2 slumped 8 percent to SEK 49.9 billion ($5.7 billion). Lower revenues in all three of the company’s operating segments brought about the decline in sales, particularly revenues in IPR licensing, Zacks reports.
Earnings for the last three months ending in June were pegged at SEK 0.17 per share, which is below the SEK 0.33 per share collected by FactSet, TheStreet reports. Ericsson also fell short of analysts’ estimates of its gross margin, which was at 29.8 percent versus the consensus of 30.2 percent, as well as for its adjusted operating margin of 0.6 percent compared to the forecasted 3.3 percent.
“We are not satisfied with our underlying performance with continued declining sales and increasing losses in the quarter,” CEO Borje Ekholm said in a statement. “Execution of our focused business strategy is gaining traction. However, in light of current market conditions, we are accelerating the planned actions to reduce costs.”
According to the company, the radio access network equipment market will experience a decline this year by a “high single-digit percentage” against previously estimated decline of between 2 and 6 percent, Financial Times reports.
The company also said that it is expecting an increased risk in market and customer project adjustments, which could affect its operating profit by as much as SEK 3 billion and SEK 5 billion ($360 million to $600 million), about 30 percent of which could hit its cashflow.
Plans to cut costs totaling to at least SEK 10 billion in annual savings are also hoped to be achieved by mid-2018.
Ekholm was appointed chief executive officer at the beginning of the year, and the latest caveat is his second profit warning, Bloomberg reports. When he took over the company, Ekholm was said to have exited some markets, which included a planned sale of its media arm. He also reviewed the company’s contracts—some with the value of SEK 7 billion, with the objective of doubling its margins, Financial Times reports.
Analysts at Wells Fargo Securities said that Ericsson was particularly hampered by emerging markets and the sluggish growth in Europe.
“Sales in Europe and Latin America (down 11 percent) were impacted by lower broadband investments, while Middle East and Africa (down 17%) faced difficulty in a macro environment,” Maynard Um, analyst at Wells Fargo, wrote in a note to investors. “North Africa was stable though declined due to a loss of a service contract and North East Asia (down 3 percent) saw a decline in China partially offset by growth in Japan and Korea.”
Revenues for the Networks segment were down 8 percent to SEK 36.8 billion ($4.2 billion), which is largely due to low investments in mobile broadband in some markets and low managed services sales. IT and Cloud revenues slumped 5 percent to SEK 10.9 billion ($1.2 billion) due to decline in legacy product sales. Revenues for the company’s media segment fell 6 percent at SEK 2.2 billion ($249.7 million), also due to lower legacy product sales.
The company recently announced plans to restructure its operations to focus on three main areas: Networks, Digital Services and the Internet of Things (IoT). Its IoT strategy will be more of a platform- and solutions-led strategy with the goal of leveraging its global scale and industry expertise.