Swedish equipment maker Ericsson reported another quarter of losses as it struggles to fend off competition from Huawei and Nokia and restructure its business. Ericsson’s struggles included a drop in revenues and an increase in net losses for the quarter.
Ericsson reported $5.9 billion in net sales revenue for the third quarter, a 6 percent year-over-year decline. The company also had a net loss of $530 million in the quarter compared to a loss of $24.4 million in the third quarter of the previous year.
However, Ericsson’s network business did provide a glimmer of hope for the firm. Although sales declined 1 percent compared to a year ago, it was a smaller drop than expected.
Ericsson CEO Borje Ekholm said the company’s Networks Business improvements in the quarter were a result of a more competitive product portfolio. He said the Ericsson Radio System product line accounted for 55 percent of the total radio product sales this year, which is contributing to better earnings and a stronger market position.
Investors reacted positively to the news. At deadline, the stock was trading at $6.45 per share, up 9.4 percent from its close yesterday of $5.90 per share.
The company also is working to improve its position in China. Ekholm said it has increased the penetration of Ericsson radios in China as a way to beef up its market share in preparation for 5G. Investors questioned the move, but Ekholm said it was necessary to increase market share in China in advance of 5G deployments. “Our radios will make you ready for the future market of narrowband-IoT (NB-IoT) and 5G that is gaining traction around the world,” he said.
Restructuring Plan Gains
Ericsson also made progress with its restructuring plans in the third quarter. The company said that it reduced its workforce by 3,000 employees, despite hiring about 1,100 new engineers in its Research and Development area. The company said it expects to increase the pace of its restructuring in the fourth quarter and is on track to meet its $1 billion in cost reduction efforts.
However, that restructuring will come with some one-time charges. Ericsson reported $343 million in restructuring charges in the third quarter and Ekholm estimates that there will be another $367.5 million to $490 million in restructuring charges in the fourth quarter, bringing the total restructuring charges to between $980 million and $1.1 billion for the year.
When asked where those cuts will occur, Ekholm said that they are happening in all regions of the world, but that most of the positions are in the service delivery areas.
In the second quarter, Ericsson warned investors that its operating income could be further impacted by between $360 million and $600 million this year because of managed services customer contracts that needed to be renegotiated.
The company said today that adjustments had been made that impacted the operating income but only had a limited impact on cash flow. In addition, it said it so far had either exited or renegotiated 13 of the 42 contracts, which resulted in a $48 million annualized profit improvement.
Correction: The restructuring charges have been changed to reflect U.S. dollar amounts. The original article had the amounts in Swedish Krona.