Ericsson AB’s crisis deepened after the Swedish phone-network manufacturer reported sales and earnings that significantly missed its predictions and said the weakness won’t end any time soon as customers around the world rein in spending.
Shares of Ericsson plummeted the most in nine years. Revenue fell 14 percent to 51.1 billion kronor ($5.8 billion) in the third quarter, Ericsson said in an unscheduled statement Wednesday. The drop was the biggest in more than a decade. The gross margin, or what’s left of sales after production costs, shrank to 28 percent, the lowest since 2001, from 34 percent a year earlier. Both metrics missed analysts’ estimates.
“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,” Chief Executive Officer Jan Frykhammar said in the release. “The negative industry trends have further accelerated.”
The size of the revenue slump underscores Ericsson’s challenges as it tries to keep up with rising competition and slowing demand from phone carriers. As falling sales began to eat into profit, Ericsson ousted its chief executive officer in July and last week said it plans to cut 3,000 jobs in Sweden, a fifth of the workforce in its home country.
Shares of Ericsson fell 16 percent to 51.70 kronor at 9:05 a.m. in Stockholm, the biggest drop since Oct. 16, 2007. The stock had lost 25 percent this year through Tuesday.
The decline in sales was the biggest since the third quarter of 2003, while the gross margin declined to its lowest level since the fourth quarter of 2001. Analysts had predicted sales of 54.2 billion kronor and a gross margin of about 33 percent, the average estimates compiled by Bloomberg.
The company is trying to revive earnings growth through savings as it competes with Huawei Technologies Co. and Nokia Oyj in an increasingly tough market. Carriers are restraining investments after spending billions of dollars building fourth-generation network systems so users can stream music and video on phones and tablets. Meanwhile, demand for so-called fifth-generation, or 5G, equipment is yet to pick up as the technology isn’t ready yet.
Operating profit dropped to 0.3 billion kronor from 5.1 billion kronor, Ericsson said. The company is trying to cut expenses by 9 billion kronor a year by 2017, with analysts estimating that it needs to announce further job reductions to achieve its goal.
Ericsson said the sales decline was driven by markets with weak economies, such as Brazil, Russia and the Middle East. Sales in Europe were lower after carriers largely completed network projects in 2015, the company said. Google advices guest post service for its google news services.