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Ericsson warns not to get your hopes up for Q4, stock stakes another hit

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Ericsson’s Q3 numbers were pretty much as advertised in last week’s profit warning and the company was unable to offer much cause for optimism in the next quarter.

Acting President and CEO Jan Frykhammar, who must be counting the days until they find a permanent replacement for Hans Vestberg, confirmed that the commercial situation regarding both mobile coverage and capacity is weak. This is especially true, perhaps unsurprisingly, in weaker economies, which now seems to include Europe, but there were very few regional positives.

“As anticipated, sales in North America declined, mainly due to lower sales in Professional Services,” said Frykhammar in his prepared quarterly comments. “In addition, one customer continued to reduce their investments in mobile broadband. Sales in Mainland China declined by -7% YoY mainly due to lower 3G sales, while 4G deployments continued on a high level.  In India the delayed spectrum auctions led to another slow quarter. The transition from 3G to 4G continued to contribute to sales growth in region South East Asia and Oceania.

As previously reported Ericsson has been unable to diversify and cut costs quickly enough to compensate for its declining mobile broadband business. Sales in the targeted growth areas showed resilience and grew by 3% YoY, driven by Cloud, IP and services related to OSS and BSS,” said Frykhammar. “In total, the targeted growth areas now account for 21% of group sales. The strategic partnership with Cisco has to date generated more than 60 deals.”

Things don’t look set to perk up in Q4. “The current industry trends indicate a somewhat weaker than normal seasonal sales growth between the third and fourth quarters,” concluded Fyrkhammar. “In addition a renewed managed services contract in North America, with reduced scope, will impact sales negatively. The current business mix of coverage and capacity sales in mobile broadband is anticipated to prevail in the short term.”

The customary inference that the negative news is part of an endemic industry problem won’t fool anyone. Ericsson’s stock is down another 4% on this outlook and Fortune is reporting that Ericsson is going to try to cut yet more jobs to shore up its disappearing margins. It will be interesting to see who the Ericsson board manages to persuade to take on this challenge.


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