ERIC Ericsson

By Matthias Verbergt 

STOCKHOLM--Swedish telecom-equipment maker Ericsson AB announced further cost reductions after reporting a 24% drop in second-quarter net profit, citing continued weak product demand in most of its markets.

The company, one of the world's largest telecom-equipment providers, said on Tuesday its net profit for the period that ended in June fell to 1.59 billion Swedish kronor ($0.186 billion) from 2.09 billion kronor a year earlier. Second-quarter revenue amounted to 54.11 billion kronor, down 11%, compared with 60.67 billion kronor in the year-earlier period.

Ericsson attributed the decline in sales to budget cuts by telecom operators, many of which completed large broadband projects last year, while several emerging markets suffered from slower economic growth.

The company said it would double its savings in operating expenses by 2017, having announced earlier an efficiency program of 9 billion Swedish kronor.

Ericsson added that it would reduce research and development investments and capture efficiency gains from the new company structure it announced in April.

The firm expects the savings to lower its annual running rate of operating expenses, excluding restructuring charges, to 53 billion kronor in the second half of 2017, compared with 63 billion kronor for full-year 2014.

"To manage the lower demand for mobile broadband investments, a set of significant actions has been initiated to further drive efficiency improvements and reduce cost," Ericsson Chief Executive Hans Vestberg said.

Ericsson's share price has lost about a third of its value over the past year, as established companies in the sector face competition from new operators, such as Huawei Technologies Co., the rapidly growing Chinese network equipment maker that has been offering innovative products at competitive prices.

In response to pressure from telecom providers to offer a broader range of equipment, Ericsson has struck a partnership with Cisco Systems Inc., projecting the alliance would add $1 billion or more in annual sales for each company by 2018. The partnership with Cisco will allow Ericsson to expand its product range to include fixed gear, such as Internet routers.

In a similar effort to broaden its product line, Finnish rival Nokia earlier this year completed the acquisition of France's Alcatel-Lucent SA. In May, Nokia posted a surprising first-quarter loss.

In the previous quarter, Ericsson announced changes to its executive team and company structure, as part of a broader reorganization of the company into five business units and one dedicated customer-service unit.

Ericsson's decision to cut costs further follows calls from analysts and investors for the company to lower its expenditure. "A lot of investors want Ericsson to save a lot more," said Mattias Eriksson, an independent equity analyst, ahead of Tuesday's report.

Last month, Ericsson said it is being investigated by U.S. authorities over possible corruption.

Write to Matthias Verbergt at Matthias.Verbergt@wsj.com

(END) Dow Jones Newswires

July 19, 2016 03:59 ET (07:59 GMT)

Ericsson (NASDAQ:ERIC)
Historical Stock Chart
From Mar 2024 to Apr 2024

Ericsson (NASDAQ:ERIC)
Historical Stock Chart
From Apr 2023 to Apr 2024