Sees mobile broadband decline; "negatives continue" Ericsson sales as reported decreased by -11% yr/yr which when adjusted for comparable units and currency, comes to -7% yr/yr. Mobile broadband sales continued to decline particularly in markets impacted by a weak macro-economic environment. Gross margin declined to 32.3%, mainly due to a larger share of mobile broadband coverage business with lower hardware margins, and a higher share of services business.
It is taking further action to reduce cost, targeting a new annual run rate of operating expenses, excluding restructuring charges, of SEK 53bn (€5.6bn) in the second half of 2017.
Hans Vestberg (above), President and CEO of Ericsson: “The negative industry trends from the first quarter have intensified impacting demand for mobile broadband, especially in markets with a weak macro-economic environment. We are delivering on ongoing cost reduction activities. However, in light of market development, management has, with the support of the Board of Directors, initiated significant actions to further reduce costs.”
“Mobile broadband sales continued to decline particularly in markets impacted by a weak macro-economic environment such as Brazil, Russia and the Middle East. In Europe, completion of mobile broadband projects in 2015 continued to have a negative effect on sales growth YoY. 4G sales in Mainland China were stable yr/yr as the fast pace of deployments continued.”
“Sales in the targeted growth areas were 20% of total sales and grew by 5% in the quarter in constant currencies. We continue to focus on increasing software sales and recurrent business to improve profitability over time. In the strategic partnership with Cisco we have engaged in more than 200 customer opportunities, spanning all major geographies. To date more than 30 deals have been closed forming a good start to reach the targeted sales of €$1bn for 2018.”
The Networks business was impacted by lower sales and an increased share of coverage business with a lower hardware margin, he says, while profitability declined sequentially mainly due to lower IPR licensing revenues. I
Given current industry trends, it aims to intensify activities to reduce cost of sales and adapt operations to a weaker mobile broadband market. In addition, the capital expenditure level will decline as the investments in the global ICT centres have peaked.