Sweden's Ericsson Warns on Q3 Revenues, Profits

One of the world’s largest makers of networking equipment, Telefonaktiebolaget LM Ericsson (NASDAQ: ERIC), announced preliminary results for its third quarter early Wednesday morning that are “significantly lower” than the company’s previous expectations. Shares plummeted 19% to a new 52-week low once trading opened in New York.

The company said the sales decline in its networks segment was mainly driven by markets with a weak macroeconomic environment, citing Brazil, Russia and the Middle East specifically.

Ericsson’s preliminary numbers indicate a drop of 19% in network sales and 14% in total sales for the third quarter. That’s a sequential decline of 13% in network sales and 6% in total sales. Gross income is projected down 28% year over year and 17% sequentially.

The preliminary estimate for operating income calls for a year-over-year drop of 93% overall and 109% in the network segment and sequential declines of 88% and 116%, respectively, for total income and network income.

Ericsson’s new CEO, Jan Frykhammar, 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. The negative industry trends have further accelerated affecting primarily Segment Networks. 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.

After about an hour of trading Wednesday morning, Ericsson’s shares traded down about 18.8%, at $5.69 in a 52-week range of $5.67 to $10.58. The low was posted Wednesday morning and volume was already nearly five times the daily average of around 4 million.

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