STOCKHOLM, Jan 20 (Reuters) – Ericsson (ERICb.ST) reported weaker-than-expected fourth-quarter core profit on Friday as sales of 5G equipment slowed in high-margin markets such as the United States, sending the Swedish company’s shares to an all-time low. since 2018.
Ericsson is the latest technology company to show the impact of customer belt-tightening amid concerns about a global economic slowdown. Others have already cut jobs, including Microsoft
Ericsson shares were down 8% early Friday. They have halved since February of last year.
The company has already announced plans to cut costs by 9 billion crowns ($880 million) by the end of 2023.
Chief Financial Officer Carl Mellander told Reuters that would mean cutting consultants, real estate and also headcount.
“It’s different from geography to geography, some are starting now, and we’re going to take it unit by unit, taking into account the labor laws of different countries,” Mellander said, referring to the cuts.
He declined to say whether the job cuts would be similar to those in 2017, when Ericsson laid off thousands of staff and focused on research to return the company to profitability.
The company’s net sales increased in the fourth quarter, but margins, net income and core earnings fell.
Its gross margin for the fourth quarter of 2022 fell to 41.4% from 43.2%.
Ericsson said it expects a margin decline in its Networks business to persist through the first half of 2023, but the effect of cost savings will be felt in the second quarter.
JPMorgan analysts said that given falling margins and rising capital expenditures, they would expect 2023 earnings to decline by double digit percentages.
Inge Heydorn, partner and fund manager at investment firm GP Bullhound, said: “The fourth quarter once again shows that the US is having a significant impact on Ericsson’s margins.
With US customers such as Verizon (VZ.N) tightening their purse strings, Ericsson hopes new markets like India can provide some growth.
Its Southeast Asia, Oceania and India market was the only one to grow in the quarter, up 21%, accounting for 13% of the company’s business.
The company’s fourth-quarter adjusted operating profit, excluding restructuring charges, fell to 9.3 billion Swedish crowns from 12.8 billion a year earlier.
That was below the 11.22 billion expected by analysts, according to data from Refinitiv Eikon.
Net sales rose 21% to 86 billion crowns, beating estimates of 84.2 billion.
The settlement of a patent agreement with Apple (AAPL.O) last month brought in revenue of 6 billion crowns, but Ericsson also took 4 billion crowns in charges, including a provision for a potential fine from regulators Americans and divestments.
Ericsson said it expects significant patent revenue growth over the next 18 to 24 months.
($1 = 10.3095 Swedish crowns)
Reporting by Supantha Mukherjee in Stockholm, editing by Terje Solsvik and Jane Merriman
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