Ericsson shocks with profit warning

Swedish infrastructure vendor Ericsson sent shockwaves through the market Tuesday morning after it cut its third quarter forecasts.

Shares in the kit vendor took a dive, losing nearly a quarter of their value, as president and CEO, Carl-Henric Svanberg, warned of a shortfall in mobile network sales and upgrades.

Net sales are now only expected to grow 6 per cent year on year to SEK43.5bn (Eur4.75bn), while operating income is forecast to drop 36 per cent to SEK5.6bn.

“The unexpected development in the quarter is mainly due to a shortfall in sales in mobile network upgrades and expansions which resulted in an unfavorable business mix that also negatively affected Group margins,” said Svanberg. “The effect of market dynamics is always a matter of judgment. This quarter we have underestimated the effects.”

Third quarter sales for the networks unit are expected to be down 2 per cent to SEK28.5bn, in strong contrast to professional services sales, which are up 26 per cent to SEK11bn and multimedia sales, which are up 31 per cent to SEK4bn.

“The present market dynamics are however working to our disadvantage from a short-term financial perspective,” Svanberg said. “Now that we have reestablished our scale advantage from the pre-industry consolidation we will shift our focus slightly and capitalize on our market share gains.”