Ericsson Plunges to Quarterly Operating Loss

Mobile telecom equipment maker Ericsson plunged to a quarterly operating loss on Tuesday, hit by shrinking markets and restructuring costs.

The Swedish company, which is focusing on its core networks business under new chief executive Borje Ekholm, reported an operating loss of 12.3 billion Swedish crowns ($1.4 billion) as previously announced provisions, writedowns and restructuring costs pushed it deep into the red.

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That compared with a 3.5 billion crown profit in the same period last year and a mean forecast for a 12.0 billion crown loss in a Reuters poll of analysts.

Its shares were down 2% in early trading.

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Ericsson has been hit by a drop in spending by telecoms firms, with demand for next-generation 5G technology still years away, and weak emerging markets. It also faces mounting competition from China's Huawei and Finland's Nokia.

First-quarter sales came in at 46.4 billion crowns, below the consensus forecast of 47.3 billion, while the gross margin was 13.9% versus the 17.9% seen by analysts.

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Ericsson said industry trends from 2016 were expected to continue in 2017. It has forecast the mobile infrastructure market to decline by 2-6% this year and stabilize thereafter.

"The only positive factor is networks' underlying margin of 12%," said Inge Heydorn, a fund manager at Sentat Asset Management, referring to the company's main business.

"The rest is basically just more of the same, mainly a weak market. Also, cash flow was negative in the quarter," Heydorn said. Sentat does not have a position in Ericsson shares.

A second investor said weak performance at other units - which include IT&Cloud and Media - showed the need to exit unprofitable businesses.

Ericsson announced $1.7 billion in provisions, writedowns and restructuring costs at the end of March.

Analysts have said these may have been related to emerging markets such as Russia, China and Latin America, as well as U.S. mobile operator Sprint, which renegotiated a managed services contract with Ericsson in July.