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Can Ericsson Achieve Revenue Growth in Fiscal 2018?

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A sluggish macro environment

Ericsson (ERIC) is a major player in a mature industry. It has been battling revenue growth over the last two fiscal years. Ericsson’s revenue in fiscal 2013 was SEK 223.2 million. Revenue rose over 2% YoY (year-over-year) to 228 million Swedish kronor in fiscal 2017 and 8.3% to 247 million in fiscal 2015.

Revenue then fell 10% YoY to 222.6 million in fiscal 2016 and again declined 10% to 201 billion kronor in 2017. Analysts expect Ericsson’s revenue to fall over 4% YoY to 191 million in fiscal 2018. Ericsson had attributed its revenue decline in 2016 and 2017 to a sluggish macro environment and lower 4G demand.

Revenue for peer companies Cisco (CSCO), Nokia (NOK), and Juniper (JNPR) is expected to rise 2.4%, 4.6%, and -5.8%, respectively, in fiscal 2018.

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Operating income fell significantly

Ericsson’s GAAP (generally accepted accounting principles) fell to -38.1 billion Swedish kronor in 2017, driven by restructuring costs, provision, impairment, and adjustments in customers projects that impacted profitability by 40 billion kronor. Adjusted operating income for the company stood at 1.7 billion kronor in 2017, a significant decline of almost 90% year-over-year from its operating income of 16.5 billion kronor in 2016.

However, revenue from Ericsson’s Networks business segment stabilized in 2017 with an improved gross margin in 4Q17.

Ericsson’s CEO, Börje Ekholm, stated, “2017 was a tough year with a continued declining market. We are far from satisfied with our performance and have taken a number of actions to turn around the development and improve profitability, to build a strong Ericsson for the long term.”

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