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Ericsson shares plunge as telecoms group issues profit warning

Published 12/10/2016

Ericsson has issued a profit warning
Ericsson has issued a profit warning

Shares in telecoms company and network operator Ericsson plunged more than 16% after the group issued a profit warning amid a slump in mobile broadband demand.

The Swedish firm said that third-quarter results would be "significantly lower" than previously forecast, with preliminary figures showing a 14% drop in sales year-on-year to SEK 51.1 billion (£4.71 billion).

Meanwhile, estimates show operating income dropped to SEK 300 million (£27.7 million), compared to SEK 5.1 billion (£471 million) during the same period last year.

The news caused shares to plummet 16% or SEK 9.90 (£0.91) to SEK 51.95 (£4.80).

Ericsson warned that negative trends - including weaker demand for mobile broadband especially in Brazil, Russia and the Middle East - are expected to continue in the short-term.

President and chief executive Jan Frykhammar said: "Our result is significantly lower than we expected, with a particularly weak end of the quarter, and deviates from what we previously have communicated regarding market development."

He explained that the company's cost reduction programme has not managed to offset lower sales and gross margin over the quarter.

Ericsson last week announced plans to cut 3,000 jobs in Sweden, or about 18% of its local workforce, and downsize a number of plants as part of its efficiency drive.

The company is hoping to cut costs by SEK 9 billion (£832 million) over 2017.

"More in-depth analysis remains to be done but current trends are expected to continue short-term. We will continue to drive the ongoing cost programme and implement further reductions in cost of sales to meet the lower sales volumes," Mr Frykhammer said.

Ericsson will release its third-quarter earnings results on October 21.

Press Association

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