Ericsson shares fall in shrinking wireless world

Ericsson shares fell the most in a year after its first quarter sales missed analysts' estimates, showing the Swedish company's efforts to expand beyond a shrinking wireless network market are failing to boost growth.

Sales fell 2.4 per cent to 52.2 billion kronor ($6.4 billion), the mobile-network equipment and software maker said on Thursday.

Analysts predicted 54.4 billion kronor, the average of estimates compiled by Bloomberg. The gross margin, the share of sales left after subtracting the cost of production, was 33.9 per cent excluding restructuring expenses, compared with the 36 per cent average estimate, weighed on by lower software revenue.

Chief executive Hans Vestberg plans to accelerate cost cuts and reorganise business units and executive positions to boost profitability and revive sales.

Ericsson is trying to sell more TV and cloud software to broadcasters and enterprises to cope with intensifying competition from Huawei Technologies and Nokia in the contracting wireless-network market.

The shortfall “makes us worry about Ericsson’s ability to ever be run tightly and improve profitability sustainably,” analysts at Bernstein said in a note to clients.

The shares fell as much as 11 per cent, the biggest intraday drop since April 2015, and declined 7.5 per cent to 72.95 kronor in Stockholm.

The stock has slumped 34 per cent over the past year giving the company a market value of 241 billion kronor.

Ericsson plans to focus on improving profitability and increasing more lucrative software sales in 2016, and started to take steps to reduce costs beyond its plan to save 9 billion kronor annually, Vestberg said in a statement.

“We are not satisfied with our overall growth and profitability development over the past years and I am convinced this will make us more competitive and enable us to grow both our company and our earnings,” he said.

- Bloomberg