Ericsson AB yesterday cautioned that turning around the beleaguered phone-equipment maker will take time and would 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 (US$600 million) of business 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.”
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 have not 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 an about 6 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 yesterday. “In light of current market conditions, we are accelerating the planned actions to reduce costs.”
The company said it would accelerate cost cuts over a previously set goal to achieve an annual run rate reduction of at least 10 billion kronor by the middle of next year.
Ekholm has also said Ericsson will cull more than US$1 billion in unprofitable service contracts, and the company has hired banks to review a possible sale of its media holdings, people familiar with the matter said last month.
Ericsson’s sales last year declined by 9.8 percent, and the company said it expects a “high single-digit percentage” drop in the market for radio access networks this year, a bigger fall than previously expected.
An anticipated stabilization and recovery from next year would support Ekholm as he aims to boost the operating margin to 12 percent.
Since Ekholm’s appointment, Ericsson’s stock had gained 15 percent through Monday. Although Gardell has not given much detail on his plans for Ericsson, his penchant for asset sales has led to speculation that he might seek more radical change.
In a June 5 memo to employees, Ekholm wrote that Gardell can be expected to increase the pressure on Ericsson to restore profitability and that the manufacturer must boost its sense of urgency in doing so.
Revenue in the three months ended last month fell 7.8 percent to 49.9 billion kronor, the Stockholm-based company said.
Analysts had predicted sales of 50.7 billion kronor on average.
Adjusted operating profit of about 300 million kronor was lower than the average estimate of 1.7 billion kronor.
Ericsson’s closely watched adjusted gross margin shrank more than expected to 29.8 percent.
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