Ericsson’s shares took a nosedive Wednesday morning after the Swedish company warned its third quarter financial results will be “significantly lower” than expected due to a continued sales slump.
According to Ericsson, negative industry trends from the first half of the year – including weak demand for mobile broadband – extended into the most recent quarter. The result was a 14 percent decline in sales year over year to just 51.1 billion Swedish Krona (around $5.8 billion), Ericsson said.
Ericsson said the sales decline was driven by markets with “weak macro-economic environments,” such as Brazil, Russia and the Middle East. Capacity sales were also down in Europe thanks to the completion of mobile broadband projects there last year, the company said.
Ericsson said its gross margin also fell to 28 percent and operating income dropped to just 300 million Krona ($33.9 million).
The downward trend is expected to continue in the short term, and Ericsson said it plans meet the lower volumes with ramped up cost reduction efforts. The strategy expands on a previously announced cost cutting plan that saw Ericsson slash some 8,000 employees in the first half of the year.
“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,” Ericsson CEO Jan Frykhammar said. “Continued progress in our cost reduction programs did not offset the lower sales and gross margin…We will continue to drive the ongoing cost program and implement further reductions in cost of sales to meet the lower sales volumes.”
The warning was not well met by the market, which sent Ericsson’s share price tumbling more than 16 percent to its lowest point since 2008 in Wednesday trading.
The news marked the first financial announcement following the departure of former Ericsson CEO Hans Vestburg in July. Vestburg was given the boot by the company’s Board of Directors following shaky first and second quarter results. He was temporarily replaced by former CFO Frykhammar while the company searches for a new head.
