Ericsson first-quarter loss shrinks as cost-cuts pay off; shares jump

By Helena Soderpalm and Olof Swahnberg
STOCKHOLM (Reuters) - Ericsson beat quarterly profit expectations on Friday as savings started to kick in, fuelling hopes for a recovery at the struggling mobile equipment maker and sending its shares up 15 percent.
The Swedish company, which is restructuring and has replaced much of its top management, has struggled with falling spending on networks by telecoms operators and weak emerging markets demand.
Its first-quarter loss shrank to 300 million crowns (£25.3 million) from a 11.3 billion loss a year earlier and beat a mean forecast for a 2.4 billion loss in a Reuters poll of analysts.
The company cut its workforce by more than 3,000 jobs during the quarter, part of reductions that have eliminated 18,000 jobs since last July, it said.
Ericsson said factors behind the improvement included cost reductions, a continued ramp-up of its 5G-ready radio system product platform and good progress in addressing poorly performing customer contracts in managed services.
"Our efforts to improve efficiency in service delivery and common costs are starting to pay off," Chief Executive Borje Ekholm said in a statement.
Ericsson, which competes with Huawei [HWT.UL], Nokia and ZTE, said it expected the Chinese market to decline further due to reduced 4G investments, but that its momentum was positive in its biggest market, North America.
Chief Financial Officer Carl Mellander told Reuters following the report the company had gained market share in Europe and North America. These gains have yet to show up in results due to the timing of projects, however.
Sales fell 6 percent in North America, but were up 6 percent on a currency-adjusted basis. Europe and Latin America was up 7 percent, with most of that growth coming in Latin America, the company said.
Gross margin excluding restructuring charges, was 35.9 percent, up from an adjusted gross margin of 29.9 percent in the previous quarter and above the analysts' consensus forecast of 32.1 percent.
It has vowed to attain gross margins of 37-39 percent by 2020.
Mellander said that half of the gross margin improvement came from costs savings, while another third was tied to sales of the Ericsson Radio System, which is key to future upgrades.
"The big jump in profitability provides evidence that Ericsson's efforts at cost reduction, addressing loss-making contracts and investing in R&D is paying off," said Liberum analyst Janardan Menon, who holds a "neutral" rating on the stock.
Redeye financial analyst Greger Johansson said gross margin for Ericsson is typically better in the first quarter than other periods of the year, so the big question is how sustainable these improvements would be.
Nonetheless, Johansson said he plans to raise his forecasts.
Ericsson still has work to do. Its operating margin was -0.7 percent versus a goal for an operating margin of at least 10 percent by 2020 and at least 12 percent beyond 2020.
The company is aiming for at least 10 billion Swedish crowns of annual savings by mid-2018, and Ekholm said last month the company would reach that on time.

Trending News

Xiaomi pumps Rs 3,500 crore into India business

BlackBuck's out to raise $150M in new round, valuation likely to jump to $800 M

With $21 Billion, Azim Premji among world’s top philanthropists

Google agreed on a $45M exit package for India-origin exec accused of sex abuse

HSBC pegs Zomato's valuation at $3.6 billion ahead of Swiggy

PayU in talks to acquire online payments firm Wibmo for $60M

Quikr close to acquiring refurbished goods marketplace Zefo in all-stock deal

What life looks like after a layoff from an IT company

General Atlantic & Tencent pump in another Rs 80 Cr in ed-tech unicorn Byju's

US Senator Warren vows to break up Amazon, Facebook, Google

SoftBank extends tech reach with $5B Latin American fund

Coverfox hits the market to raise $50M in new financing round

Cognizant faces US lawsuit alleging discrimination

China's Huawei sues US over federal ban on using its products

Germany's Delivery Hero acquires Zomato's UAE biz, invests in India ops

Ahead of deadline, debate rages on e-commerce policy

Flipkart rejigs reporting of Myntra-Jabong head Amar Nagaram

Grofers raises fresh funds from existing investors, valuation hits $425M

Sachin Bansal invests Rs 250 Cr each in NBFCs Altico & IndoStar: Report

I-bank Wolet files $800k suit over Flipkart’s Upstream buy

Flipkart FY18 revenue up 50%, but losses grow 5x

Pine Labs in talks to acquire Amazon-backed Qwikcilver for $100M

India can become 2nd largest 5G market in 10 years: Huawei

Alibaba rival Pinduoduo seeks to raise $1.5B

Twitter Q4 revenue grows to $909M as video ad sales surge

Mukesh Ambani to invest $1.4B in West Bengal, will help e-commerce expansion

Etail may lose Rs 40,000 crore, retail to get a 3rd of it

Steadview Capital invests $74M in Ola valuing it at around $6B

Byju’s ups revenue to Rs 490 cr in FY 18, losses drop by half

Agritech startups Sabziwala and LivLush merge their business under new entity Kamatan

Avail Finance lands $17.2M from Matrix Partners & Ola, Freecharge and Flipkart founders

RBI suggests tax sops, self-regulation to build fintech space

Swiggy hires new CEO for its Access Service, gets new CFO

Logistics company Delhivery registers 44% increase in FY17 revenues

WeWork to acquire one of the oldest social networks, Meetup

Qualcomm rejects Broadcom's $103 billion offer

EasyRewardz gets $2 million Series-A funding

'Anemic' iPhone 8 demand drags Apple shares lower

Lending platform Lenden Club gets Rs 3.5cr in Equity Investment

On festive sales, Flipkart says 65% clients from Tier-II cities