ERIC Ericsson

By Matthias Verbergt 

STOCKHOLM-- Ericsson AB missed market expectations for first-quarter sales and profit and announced a sweeping corporate reorganization, raising questions about the Swedish telecommunications-equipment maker's ability to find new sources of growth amid rapid technological and market change.

The company's shares fell heavily in early trading in Stockholm, opening down around 10% before recovering a little to trade around 8% lower.

Ericsson, one of the world's largest wireless telecoms equipment providers, said on Thursday that net profit rose 49% to 1.97 billion Swedish kronor ($242.6 million) in the three months to end-March from 1.32 billion kronor a year earlier on a 2% slide in revenue to 52.21 billion kronor from 53.52 billion kronor.

The company attributed the decline in sales to slower economic growth in emerging markets in the Middle East and Latin America as well as in Europe where a number of large broadband projects were completed last year. Equipment sales in North America and China improved.

The results came in below analysts' expectations. Analysts polled by FactSet expected a net profit of 3.13 billion Swedish kronor, and sales of 54.52 billion kronor.

"We aren't satisfied with our overall growth and profitability development over past years," said President and Chief Executive Hans Vestberg. Ericsson said its gross operating profit margin shrank to 33.3% in the quarter from 35.4% in the same period a year earlier.

Ericsson also announced sweeping changes to its executive team, with the departure of three senior vice presidents and a number of promotions, as part of a broader reorganization of the company into five business units and one dedicated customer-service unit.

"We are today announcing further actions to accelerate strategy execution and to drive efficiency and growth across the company even harder," Mr. Vestberg said.

The shake-up at the Swedish company come as companies in the sector, including Cisco Systems Inc. and Nokia Corp. face pressure from telecom companies for a broader range of equipment, from wireless gear to Internet routers, but have opted for different solutions to achieve that goal.

While Nokia has agreed to a takeover of rival Alcatel-Lucent, Ericsson has struck a broad technological and commercial partnership with Cisco Systems Inc. that falls short of a merger. Ericsson, a leader in wireless equipment, has agreed to put its global sales force at the disposal of Cisco, which dominates the market for Internet gear such as routers and switches, but has a much smaller retail footprint.

Mr. Vestberg said Ericsson needed to adapt its business to cope better the development of next generation, or 5G, mobile technology as well as growth in the market for connected devices and cloud computing.

"As 5G, the Internet of Things, and Cloud drive the next phase of industry development, the time is just right to make these changes," he said.

Ericsson said two business units would focus on network products and services respectively, with another two on information technology and cloud computing, and a fifth on media.

The company raised its estimate of this year's likely restructuring costs to 4 billion to 5 billion kronor from a previous estimate of 3 billion to 4 billion kronor.

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

(END) Dow Jones Newswires

April 21, 2016 04:08 ET (08:08 GMT)

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