ERIC Ericsson

By Matthias Verbergt and Dominic Chopping 

STOCKHOLM-- Ericsson AB, one of the world's largest makers of telecom equipment and Sweden's flagship tech company, Wednesday capped a series of management shake-up and job-cut announcements with a profit warning that sent its share price tumbling and laid bare how the rise of Asian rivals has wounded Western suppliers.

The company said its third-quarter earnings will be "significantly lower" than expected, citing a 19% sales decline in its core mobile-network equipment business.

The news sent the company's share price down as much as 18% Wednesday morning.

Ericsson is being hit hard as spending by mobile-service providers on latest-generation, or 4G, networks has largely dried up, with most mobile-broadband projects having been completed last year. At the same time, competition has risen, with Huawei Technologies Co. of China expanding aggressively on the traditional European turf of Ericsson and Finland's Nokia Corp.

The company has also been hurt by economic weakness in developing markets such as Brazil, Russia and the Middle East.

Ericsson said it expected to post third-quarter sales of 51.1 billion Swedish kronor ($5.79 billion), down 14% from 59.2 billion kronor last year, with operating profit falling 93% to 300 million kronor from 5.1 billion kronor, partly on restructuring charges of 1.3 billion kronor.

Jan Frykhammar--who took over as interim chief executive in July after CEO Hans Vestberg was ousted --offered no prospect for a quick turnaround, warning that additional cost-cutting measures may be necessary.

"Continued progress in our cost reduction programs did not offset the lower sales and gross margin," Mr. Frykhammar said. "We will continue to drive the ongoing cost program and implement further reductions in cost of sales to meet the lower sales volumes."

"Ericsson's profit warning is troublesome and underlines how very weak business climate is within radio and mobile broadband," said Mathias Lundberg, an analyst at Swedbank. He added that the slowdown in global mobile-phone sales was also denting Ericsson's lucrative patent business.

Ericsson is now betting on the development of faster wireless networks, called 5G, and software-based services such as the so-called "internet of things" and cloud computing. But the first revenue from 5G is several years away and take-up has been slow, analysts say.

Ericsson's said the shift to services sales contributed to a decline of its third-quarter gross margin to 28%, compared with 34% in the same period last year.

Last week, Ericsson announced plans to lay off nearly 20% of its 16,000-strong home-country workforce. The job cuts were a first step in a wider restructuring program in which Ericsson plans to significantly reduce its global staff of 115,000.

Mr. Frykhammar said he expects the current trends to continue in the next two to three quarters. Ericsson said it will provide more details on Oct. 21, when it publishes its full third-quarter report.

Write to Matthias Verbergt at Matthias.Verbergt@wsj.com and Dominic Chopping at dominic.chopping@wsj.com

(END) Dow Jones Newswires

October 12, 2016 06:11 ET (10:11 GMT)

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