Ericsson Q3 Loss Widens, Adj. Gross Margin Rise; Stock Up

(RTTNews) - Swedish telecom equipment maker Ericsson (ERIC) reported Friday wider than expected third-quarter loss on higher charges and weak sales. However, adjusted gross margin improved and the company sees positive effects on gross margin in 2018. Ericsson further said the general market conditions continue to be tough, yet it is starting to see some encouraging improvements. Ericsson shares were gaining around 5 percent in the early morning trading in Stockholm.

Börje Ekholm, President and CEO, said, "We now expand our focus to improve profitability through increased efficiency in service delivery. In addition, we will scale the software part of the business mix and increase the level of pre-integration services, which will lead to a higher gross margin but lower services sales."

The company said it has managed to increase LTE market shares in Mainland China to position Ericsson in 5G. But, it will have a dilutive effect on gross margin in Mainland China in fourth quarter. The company said it aims to continue to deliver double digit adjusted operating margin in Networks in the fourth quarter.

Further, the company now expects its risk estimate to be in the higher end of the given range of 3 billion Swedish kronor to 5 billion kronor until mid-2018.

For the fourth quarter, the company projects restructuring charges to be 3 billion kronor to 4 billion kronor, and for fiscal 2017 to be about 9 billion kronor to 10 billion kronor.

In its third quarter, net loss was 4.3 billion kronor, wider than loss of 0.2 billion kronor a year ago. Loss per share was 1.34 kronor, compared to loss of 0.07 krona a year ago.

As a result of the ongoing cost reductions, restructuring charges of 2.8 billion kronor were taken in the quarter, including a 1.6 billion kronor write-down related to the decision to close and divest the ICT center in Canada.

Adjusted loss per share was 0.55 krona, compared to profit of 0.34 krona last year.

Adjusted operating income was breakeven, compared to 1.6 billion kronor last year. Operating income was negatively impacted by higher amortization than capitalization of development expenses and higher recognition than deferral of hardware costs.

Gross margin declined to 25.4 percent from 28.3 percent last year, while adjusted gross margin improved to 30 percent from 29.4 percent last year, driven by increased adjusted gross margin in Networks.

Net sales decreased 6 percent to 47.8 billion kronor. Sales adjusted for comparable units and currency declined 3 percent.

Networks sales fell 4 percent. However, sales adjusted for comparable units, currency and the rescoped managed services contract in North America, increased slightly.

Sales in Mainland China declined as the market is normalizing following a period of significant 4G deployments.

Ericsson shares were trading at 51.25 kronor, up 5.09 percent.