Foreign media reported that the Swiss telecommunications equipment manufacturer Ericsson unexpectedly issued a performance warning on Wednesday, saying that the company's third-quarter revenue will be "seriously lower than" the company's expectations, and can not see the impact of the recovery, the company's share price in the day The Dak stock market plunged 20.83% to close at $5.55.
Ericsson's share price plunged on Wednesday, hitting the company's biggest single-day drop in nine years, and the market value evaporated by $3.8 billion. Earlier, Ericsson's share price has fallen by 25% this year. In a statement, Ericsson said that due to the impact of global telecom operators' investment cuts, the company's weak performance began to accelerate at the end of the third quarter and could not be reversed in a short period of time.
A week before Ericsson issued a performance warning, the company had just announced a major layoff in Sweden. About 3,000 of them are from manufacturing, R&D and other departments, and another 900 are consultants. Ericsson said on Wednesday that the company's third-quarter revenue was 51.1 billion Swedish kronor (about 5.8 billion US dollars), down 14% year-on-year, the biggest decline in more than 10 years; operating profit fell from 5.1 billion Swedish kronor to 300 million Swedish kronor The gross profit margin fell to 28%, the lowest level since 2001, down from 34% in the same period last year. None of the above data met market expectations.
The deepening of the Ericsson crisis forced Jan Frykhammar, the CEO of one of the world's largest telecom equipment manufacturers with a history of 140 years, to reassure shareholders. Fleckhammer said that Ericsson did not enter the death vortex. He said, "This is by no means the beginning of Ericsson's demise. We are a company that has been good at making adjustments for many years."
Swedish bank analyst Mathias Lundberg said that Finnish telecom equipment maker Nokia is currently facing similar market challenges. Nokia shares fell 4.6% on Wednesday to close at 4.65 euros. Lundberg said, "We have already expected the environment in the telecom equipment market to be weak, and Ericsson's performance will be affected. It is just that we are not sure that it will become so bad. The company's performance warning has made us and the market feel Shock."
Ericsson pointed out that the major markets in the company's growth strategy, including Brazil, Russia and parts of the Middle East, the economic trend is very weak; and European telecom operators have completed the laying of mobile broadband projects. Fleckhammer said in the statement: "The current market demand is declining. We must adjust the cost of sales resources, whether external or internal. The negative trend of the entire industry has been spreading further."
Against the backdrop of increasing competition from Ericsson and the slowdown in telecom operators' demand, the plunging revenue reflects the company's current challenges. After the decline in revenue began to devour the company's profits, Ericsson removed its former CEO in July this year and announced layoffs in Sweden last week. The layoffs accounted for one-fifth of the total number of employees in Ericsson Sweden. Fleckhammer, who has been promoted from chief financial officer position to chief operating officer, has said he will not be the CEO of Ericsson for a long time. Ericsson is currently looking for a permanent CEO.
Neil Campling, an analyst at Northern Trust Securities, said, "Ericsson’s performance decline in the first half of the year has not slowed down, and in fact it has become worse in the second half of the year." Because it faces Huawei in a difficult market, In competition with companies such as Nokia, Ericsson is trying to increase profits by cutting spending. After telecom operators have invested billions of dollars to complete the deployment of fourth-generation network systems, allowing users to play music and videos on their phones, they are now cutting spending. At the same time, because the fifth-generation mobile technology is not yet mature, operators' demand for this technology is not very strong.
Mike Walkley, an investment bank analyst at Canaccord Genuity, reiterated Ericsson’s “hold†rating in an investor report released on Wednesday, but lowered its target price from $7 to $5.50. The analyst believes that Ericsson will need to cut spending further. He said that in view of the weak demand for mobile broadband equipment, Ericsson management is expected to increase cost reduction measures. As 5G network investment is still in its infancy, and global 4G network spending may continue to decline in the next few years, Ericsson's network business revenue trend will continue until 2017. In addition, the analyst also lowered Nokia's target price from $7 to $6.
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