Swedish telecoms equipment giant Ericsson suffered an "unsatisfactory and mixed" Q1, says CEO Borje Ekholm, as the vendor recorded a net loss of SEK10.9 billion ($1.2 billion) and an 11 percent year-on-year decline in sales. Ekholm said during a conference call that the company's performance has been affected by restructuring costs, as well as a faster than anticipated decline in sales of its legacy portfolio.
Ericsson is going to increase its cost-saving efforts, according to the company's earnings call which the CEO participated in. He said Ericsson also needs to increase the speed of its new product pipeline and business development initiatives. Ericsson will be assessing its contract procedures and discounts offered to customers, as part of an ongoing business review, to boost its margins.
The network business has been strong despite lower than expected sales, said the CEO, but the decline in Ericsson legacy media product sales and IT and Cloud business segments has made a significant impact. "It was tough, but it was mixed," said Ekholm discussing Ericsson's Q1 performance. "We have a very stable networks business that is performing well. We have IT and cloud and media with big significant losses. We are taking actions so we can turn that around and reach our long-term ambitions."
In January, Ekholm pledged to guide the beleaguered company through what he labeled a "period of intense change". The Swedish telecoms giant has endured some major setbacks, and was forced to lay off more than 3,000 of its Swedish staff last year. What's more, the company has been forced to fight off bribery allegations after former executives of Ericsson told the US Securities and Exchange Commission (SEC) that they had engaged in multiple counts of bribery in different regions all over the world in an effort to secure major contracts.
However, Ekholm insisted that under his tenure the company will come through this intensely difficult period, and will emerge as an "even stronger leader" in the industry. In a statement, Ekholm pointed to Ericsson's position in the development of 5G as a reason to be optimistic for the future, and reiterated his desire to return the company to success.
The company has suffered continued losses, in Q1 reporting SEK13.4 billion of restructuring costs, asset write-downs and what has been described as "provisions and adjustments related to certain customer projects." Ericsson sales dropped from SEK2.2 billion in Q1 2016 to SEK46.4 billion in the recent quarter.
Ericsson says it is "not satisfied with the cost structure of the company and the existing cost and efficiency program is not yielding sufficient results." The vendor said in a statement, "Based on current profitability, we will intensify our efforts to reduce cost with focus on structural changes to generate lasting efficiency gains and increase cost competitiveness."
Eekholm expects the company will make a profit in 2018, with a target to double its underlying 2016 operating margin by 2019. Earlier this month Ericsson said it will "pursue a more focused business strategy to revitalize technology and market leadership, improve group profitability and enable customer success." The overall strategy is to "enable service providers to expand their business across industries and into new profit pools."
The company says it will drive the development of market-leading solutions, fully leveraging the potential of 5G, IoT and cloud. Restoring profitability is key for Ericsson and it will start by focusing the portfolio to fewer areas and securing effectiveness and efficiency in operations.
Ericsson also says it will increase emphasis on solutions across the company, combining products and services, to drive efficiency and better meet customer needs and requirements. This will also be reflected in a simplified organization. In parallel, Ericsson will accelerate investments both in R&D and services capabilities in selected core areas to ensure that it can offer customers leading solutions.