By Supantha Mukherjee
STOCKHOLM -Ericsson on Friday reported lower than expected fourth-quarter core earnings as sales of 5G equipment slowed in high-margin markets such as the United States, sending the Swedish company’s shares to their lowest since 2018.
Ericsson is the latest tech company to show the impact of customers tightening belts amid concerns about a global economic slowdown. Others have been cutting staff, including Microsoft and Google parent Alphabet which have announced thousands of job cuts this week.
Ericsson has already announced plans to cut costs by 9 billion crowns ($880 million) by the end of 2023.
Chief Financial Officer Carl Mellander told Reuters that would involve reducing consultants, real estate and also employee headcount.
“It’s different from geography to geography, some are starting now, and we’ll take it unit by unit, considering the labour laws of different countries,” Mellander said, referring to the cuts.
He declined to say if the job cuts would be similar to 2017 when Ericsson laid off thousands of employees and focused on research to return the company to profitability.
Ericsson’s shares were down as much as 8% early on Friday and were down 5.7% by 1206 GMT. They have fallen by about 40% since February last year following a U.S. investigation into potential payments by the company in Iraq.
Last week, the company said it would book a 2.3 billion Swedish crown ($220 million) provision for an expected fine from U.S. authorities for breach of a settlement reached in 2019.
Ericsson’s net sales rose in the fourth quarter, but margins, net income and core earnings fell.
Its gross margin for the fourth quarter of 2022 fell to 41.4% from 43.2%.
Ericsson said it expected a fall in margin in its Networks business to persist through the first half of 2023 but the effect of cost savings to emerge in the second quarter.
JPMorgan analysts said given the fall in margins and higher investments, they would expect 2023 earnings to decline by a double digit percentage.
Inge Heydorn, partner and fund manager at investment firm GP Bullhound, said: “The fourth quarter shows once again that the U.S. has a big impact on Ericsson’s margins.”
With U.S. customers such as Verizon tightening their purse strings, Ericsson is hoping newer markets such as India can provide some growth.
Its South East Asia, Oceania and India market was the only one to grow in the quarter, rising 21%, accounting for 13% of the company’s business.
The company’s fourth-quarter adjusted operating earnings, excluding restructuring charges, fell to 9.3 billion Swedish crowns from 12.8 billion a year earlier.
That was short of the 11.22 billion expected by analysts, Refinitiv Eikon data showed.
Net sales rose 21% to 86 billion crowns, beating estimates of 84.2 billion.
A settlement of a patent deal with Apple last month resulted in revenue of 6 billion crowns, but Ericsson also took 4 billion crowns in charges, including a provision for a potential fine from U.S. regulators and divestments.
Ericsson said it expects significant patent revenue growth over the coming 18-24 months.
($1 = 10.3095 Swedish crowns)