Ericsson Q3 revenue numbers disappoint on flagging network sales

Monday, 26 October 2015

Shares in Swedish networking giant Ericsson took a hit on the back of Q3 numbers that revealed a 9% fall in revenues, adjusted for comparable units and currency.

As ever the main culprit was network sales, where North America declined year-on-year, there was a slowdown in mainland China 4G deployments, and general softness in the Brazil, Russia and the Middle East.

Things would have been worse were it not for continued improvement in professional services, which grew by an unadjusted 15%. The good news for Ericsson is that networks now account for less than 50% of total revenue, so the aim of lessening its exposure to that mature and difficult market seems to be succeeding.

Another positive was the continued improvement in the bottom line, with net income up 47% from the previous quarter and up 19% year-on-year. That Ericsson is able to increase profitability even when its revenues are declining is testament to the effectiveness of its ongoing efficiency drive, which is on target to achieve annual net savings of SEK 9 billion by 2017.

“We are seeing a tangible impact on our cost base, which combined with good traction in our targeted areas and improving profitability can give us confidence as a company,” Ericsson CFO Jan Frykhammar told Telecoms.com.

While you might think this improved profitability would have been well received by investors, but Ericsson’s NASDAQ listing opened almost 9% down on the news. The issue, as ever with investors, is that they expected better and the probability of the 4G roll-out peaking in China will have made them nervous.