Ericsson announces restructuring after Q1 sales disappoint


(Image Credit: Ericsson

Swedish telecommunications giant Ericsson has announced disappointing Q1 sales and the intention to focus on restructuring to harness new oportunities and drive growth and profitability over the coming years. Hans Vestberg, President and CEO, Ericsson, says: “We are not satisfied with our overall growth and profitability development over past years. We are today announcing further actions to accelerate strategy execution and to drive efficiency and growth across the company even harder.” 

Over the past year, sales have decreased two percent. Ericsson points the blame towards weak development in Europe and the poor macro-economic environment in some emerging markets. Despite weak sales in Europe, sales grew in North America, Mainland China, and South East Asia but were not enough to push Ericsson into positive YoY overall sales. 

Ericsson seeks to make the required organisational changes now in order to quickly harness upcoming opportunities in 5G and the Internet of Things. “We will create a leaner, more fit for purpose organisation to cater for the needs of different customer segments and to faster capture market opportunities. As 5G, the Internet of Things, and Cloud drive the next phase of industry development, the time is just right to make these changes.” 

 

SEK b. 

Q1 
2016 

Q1 
2015 

YoY 
change 

Q4 
2015 

QoQ 
change 

 Net sales 

52.2 

53.5 

-2% 

73.6 

-29% 

   Sales growth adj. for comparable units and currency 

– 

– 

-1% 

– 

-28% 

 Gross margin 

33.3% 

35.4% 

– 

36.3% 

– 

   Gross margin excluding restructuring charges 

33.9% 

36.3% 

– 

36.6% 

– 

 Operating income 

3.5 

2.1 

63% 

11.0 

-69% 

   Operating income excluding restructuring charges 

4.1 

2.7 

50% 

11.7 

-65% 

 Operating margin 

6.7% 

4.0% 

– 

15.0% 

– 

   Operating margin excluding restructuring charges 

7.9% 

5.1% 

– 

16.0% 

– 

 Net income 

2.1 

1.5 

45% 

7.0 

-70% 

 EPS diluted, SEK 

0.60 

0.40 

50% 

2.15 

-72% 

 EPS (Non-IFRS), SEK 1) 

0.87 

0.77 

13% 

2.50 

-65% 

 Cash flow from operating activities 

-2.4 

-5.9 

-60% 

21.9 

-111% 

 Net cash, end of period 2) 

36.5 

39.7 

-8% 

41.2 

-11% 

1) EPS, diluted, excl. amortizations and write-downs of acquired intangible assets, and restructuring. 
2) The definition of Net cash is changed to exclude post-employment benefits, see accounting policies page 24. 

Three highlighted focus areas for Ericsson are – core business, improved profitability in targeted growth areas, and improved cost and efficiency. Ericsson managed to achieve 500 million kronor efficiency savings in Q1, but the group wants to save a lot more during the course of the next year. “We are confident in our ability to achieve net annual savings of nine billion kronor during 2017 compared with 2014,” the group said. 

Are you surprised with Ericsson’s Q1 results? Share your thoughts in the comments. 

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