Ericsson Falls 18% on Q3 Guidance Warning

Shares of Ericsson (ERIC) were down by more than 18% Wednesday after the Swedish telecommunications major warned that its business results for the third quarter of the year would be “significantly lower” than its previous expectations saying that weaker demand for mobile broadband had accelerated.

ERIC opened for trade at its lowest level since December 2008.

The company, which has approximately 16,000 employees in Sweden, said that it now expects to record a 14% decline in its third quarter sales year-on-year to SEK 51.1 billion ($5.78 billion), driven by what it described as slower development in its segment networks where sales declined by 19%, according to its preliminary third quarter results.

Gross margin for the quarter is expected to have declined to 28% from 33.9% in the prior year period following lower volumes in Ericsson’s segment networks, lower mobile broadband capacity sales, and a higher share of services sales. Operating income declined to SEK 0.3 from 5.1 billion in the prior year period, including restructuring charges of SEK 1.3 billion.

Jan Frykhammar, chief executive officer of Ericsson, said: “Our result is significantly lower than we expected, with a particularly weak end of the quarter, and deviates from what we previously have communicated regarding market development.”

“Continued progress in our cost reduction programs did not offset the lower sales and gross margin. More in-depth analysis remains to be done but current trends are expected to continue short-term. We will continue to drive the ongoing cost program and implement further reductions in cost of sales to meet the lower sales volumes,” he added.

The company’s full third quarter results are due to be published on October 21. The statement comes just over a week after the company unveiled plans to slash thousands of jobs as part of a cost-cutting programme targeting savings of SEK 9 billion during 2017.

The company said on October 4 that it intends to reduce 3,000 positions in production, research and development (R&D) and sales and administration through a combination of voluntary and forced reductions as well as other measures such as outsourcing.