The bad news continues to mount for Swedish equipment maker Ericsson, as the company today reported its first net loss in four years.
Ericsson ended the third quarter with a 233 million Swedish kroner ($26.2 million) loss, compared with a net profit of 3.08 billion Swedish kroner ($345 million) in the same period last year.
The company also reported that its net sales fell 14 percent year-over-year, with declines in all segments. Networking sales were down 20 percent year-over-year. And the company’s gross margin fell to 28 percent, the lowest level in 15 years. Interim CEO Jan Frykhammer said during a call with investors that the gross margin decline was the result of lower capacity sales in countries impacted by the macroeconomy.
Ericsson’s bad news isn’t a huge surprise. The company last week issued a profit warning, saying its third quarter earnings would be lower than expected. The company blamed its hard times on weaker demand for mobile broadband along with a weak macroeconomic climate.
The Swedish equipment maker has been hit with a slowdown in spending by many large service providers, particularly those in North America, which is its biggest market. Those service providers have largely completed their 4G buildouts, and 5G deployments aren’t likely to begin for at least a few more years.
Frykhammer also indicated that this trend would continue into the fourth quarter and that seasonal growth that the company typically sees in the fourth quarter will be much weaker than in the past.
Cost Savings Plan
Ericsson said it is on track with its cost and efficiency program that was started in November 2014 and expanded in the second quarter. The company said it is on target to reduce its annual run rate of operating expenses, excluding restructuring charges, to $5.94 billion.
Ericsson also said it is expecting further decline in its North America market as sales from one of its managed services contracts are declining. Ericsson in July said that it was renegotiating its managed services deal with Sprint that at one time was valued at $5 billion over a seven-year-period. That contract was up for renewal in September, and Ericsson said that the deal was “reduced in scope.”
Ericsson said its Cisco partnership is still thriving, however, and has resulted in about 60 business opportunities. “We have created momentum. We wanted to see business growth, and we are happy with the progress,” Frykhammer said.
Last November, Cisco and Ericsson announced a partnership in which the two would work jointly on Internet infrastructure, cloud, and wireless network products. At the time, the companies said that the partnership would generate $1 billion in revenue for each side by 2018.
Ericsson’s stock was trading at $4.62 per share this morning, down 5.7 percent from yesterday’s closing price of $4.90 per share.