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As Mobile Equipment Sector Suffers, So Do Ericsson’s Shares

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Shares fell 20% on October 12

On October 12, 2016, Europe-based (EFA) Ericsson (ERIC) announced its preliminary 3Q16 earnings, which were significantly lower than its expectations. The company’s sales were impacted by industry trends that have been negatively affecting the mobile equipment sector since early 2016.

Ericsson stated that sales in its Segment Networks business have fallen, driven by a weak macroeconomic environment in markets such as Brazil, the Middle East, and Russia.

Ericsson’s capacity sales also missed expectations in Europe following the completion of its mobile broadband projects last year. Ericsson’s sales have fallen in most of the last ten years. Its overall revenue fell 14% YoY (year-over-year) in 3Q16, whereas its Segment Networks sales fell 19% YoY.

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Falls in revenue, gross margin

Ericsson announced preliminary revenue of 51.1 billion Swedish krona in 3Q16, compared to 59.2 billion krona in 3Q15. Its gross margins also fell to 28% compared to 34% in 3Q15, driven by “lower volumes in Segment Networks, lower mobile broadband capacity sales, and higher share of services sales,” according to the company.

ERIC’s operating income also fell 93% YoY, from 5.1 billion krona in 3Q15 to 0.3 billion krona in 3Q16. Ericsson expects these trends to continue in the short term.

Jan Frykhammar, president and CEO of Ericsson, stated, “The negative industry trends have further accelerated affecting primarily Segment Networks. Continued progress in our cost reduction programs did not offset the lower sales and gross margin. More in-depth analysis remains to be done but current trends are expected to continue short-term.”

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