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Why Ericsson Missed Revenue Expectations for 1Q18

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Ericsson’s revenues in 1Q18

Though Ericsson (ERIC) posted better-than-expected earnings in the first quarter of 2018, the telecom equipment giant missed revenue expectations. Ericsson’s revenues of $5.14 billion in 1Q18 not only declined from its 1Q17 revenue of $5.66 billion but also missed Wall Street expectations. Analysts expected Ericsson to report revenues of $5.36 billion for 1Q18.

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Reasons for the revenue decline

Ericsson has been struggling to grow its revenue since 3Q16 due to the sluggish macroeconomic environment and saturated industry. Ericsson’s revenue in fiscal 2017 fell to 201 billion Swedish kronor, down from fiscal 2013 revenues of 223.2 million.

In 1Q18, revenues declined due to lower demand for 4G. The company, along with other key players, started focusing on 5G technology. Moreover, a slowdown in spending by wireless carriers severely hurt the company’s financials in the quarter.

Revenues declined 6% in North America but were up 6% on a currency-adjusted basis. Revenues in Europe and Latin America were up 7%. Most of that growth came from Latin America.

Trade war impact

The ongoing trade war between the United States (SPY) and China (MCHI)(FXI) is expected to benefit Ericsson and its peer Nokia (NOK), according to Reuters. However, Ericsson’s peers ZTE and China’s Huawei are expected to face troubles from US politicians on national security grounds.

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