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Bloomberg
Ericsson AB cautioned that turning around the beleaguered phone-equipment maker will require even steeper cost cuts, testing the patience of investors who sent the stock tumbling the most this year.
Ericsson fell as much as 11 percent to 54 kronor in Stockholm after the company posted a second-quarter loss and warned that a faltering market amid technology shifts could cause as much as 5 billion kronor ($600 million) of operating income to evaporate over the next 12 months.
“We’re three months into the strategy,†Chief Financial Officer Carl Mellander said in an interview. “I think you should have patience because this is about value creation and the long game. There is no quick fix, this is about strategic work and a repositioning of the company.â€
Chief Executive Officer Borje Ekholm, who took the helm in January, is under pressure from activist investor Christer Gardell to deliver a speedy turnaround. His plan hinges on reducing costs and scaling back expansion plans that haven’t panned out, while refocusing on Ericsson’s core business of selling networking equipment ahead of the expected roll-out of 5G networks. Gardell’s fund Cevian has acquired a 6.5 percent stake in the company since March.
“We are not satisfied with our underlying performance with continued declining sales and increasing losses,†Ekholm said in a statement. “In light of current market conditions, we are accelerating the planned actions to reduce costs.â€
Ericsson’s closely watched adjusted gross margin shrank by 3.4 percentage points from a year earlier to 29.8 percent in the second quarter. The company swung to a net loss of 1 billion kronor from a profit of 1.59 billion kronor a year earlier.
The company said it will accelerate cost cuts over a previously set goal to achieve an annual run-rate reduction of at least 10 billion kronor by mid-2018. Ekholm said Ericsson has identified 42 service contracts that the company will exit, renegotiate or transform. The company has hired banks to review a possible sale of its media holdings, people familiar with the matter said in June.
In 2016, Ericsson’s sales
declined by 9.8 percent, and
the company said on Tuesday
it expects a “high single-digit percentage†drop in the market for radio access networks
this year, a bigger fall than
previously expected.