Ericsson shares fall as earnings disappoint
By Supantha Mukherjee
STOCKHOLM -Ericsson’s fourth-quarter core earnings were lower than expected due to slowing 5G sales in high-margin areas like the United States. That pushed the shares of the Swedish company to their lowest point since 2018.
Ericsson is the latest tech company that has shown the effects of customers tightening their belts amid worries about a global slowdown. Others have had to cut staff, including Google parent Alphabet and Microsoft.
Ericsson already plans to reduce costs by 9 billion crowns ($880 millions) by 2023.
Carl Mellander, chief financial officer, told Reuters that the plan would be to reduce consultants, real property and employee headcount.
Mellander stated that the cuts are different depending on where you live.
He declined to comment on whether the job cuts would be the same as 2017 when Ericsson laid off thousands and instead focused on research to bring the company back to profitability.
Ericsson’s shares dropped as much as 8 percent early Friday. They were also down 5.7% at 1206 GMT. Following an investigation by the United States into possible payments made by Ericsson to Iraq, they have fallen about 40%.
The company announced last week that it would pay a provision of 2.3 billion Swedish crowns ($220m) to the U.S. authorities in anticipation of a fine for violating a 2019 settlement.
U.S.
Ericsson’s fourth quarter net revenues rose, but margins, income, and core earnings declined.
Its gross margin for 2022’s fourth quarter fell to 41.4% from 43.2%.
Ericsson indicated that while it expected a decrease in margins for its Networks business through the first quarter of 2023, the effects of cost savings would emerge in the second.
Analysts at JPMorgan stated that they expect 2023 earnings to fall by a double-digit percentage due to the decline in margins and higher investments.
Inge Heydorn is a partner and fund manager at investment company GP Bullhound. She stated that “The fourth quarter again shows that the U.S. has a large impact on Ericsson’s margins.”
Ericsson hopes that India, along with U.S. customers like Verizon, will provide some growth.
The company’s South East Asia and Oceania markets grew 21% in the quarter. They accounted for 13% of its business.
The adjusted operating earnings of the company for the fourth quarter were lower than 12.8 billion in year-ago.
Refinitiv Eikon data revealed that this was less than the 11.22 billion analysts expected.
Net sales increased 21% to 86 Billion Crowns, surpassing estimates of 84.2 Billion.
The settlement of a patent agreement with Apple last month generated revenue of 6 Billion Crowns. Ericsson took 4 Billion Crowns in charges, which included a provision for a possible fine from U.S. regulators.
Ericsson indicated that it expects significant growth in patent revenue over the next 18-24 month.
($1 = 10.3095 Swedish crowns
(Reporting by Supantha Mokherjee in Stockholm; editing by Terje Solsvik & Jane Merriman).