Swedish telecoms group Ericsson has warned that results at its core equipment business are set to get worse as it struggles to win over investors after weak performance and corruption investigations.
Shares in Ericsson fell 7 per cent on Friday morning after it reported weaker-than-expected fourth-quarter results and said its profit margins in its networks business would continue to fall in the first half of this year.
Andrew Gardiner, analyst at Citi, said the announcements demonstrated the “significant challenges” the company faced this year. “We view Ericsson’s outlook as one of fundamentals deteriorating in the next quarter or two, as it aims to improve in the second half and beyond,” he added.
Ericsson’s shares have halved since it revealed just under a year ago that it could have made payments to the Isis terror group in Iraq. It took a $220mn provision last week against a breach in its 2019 deferred prosecution agreement with the US Department of Justice, which came about due to corruption in countries including China, Indonesia and Djibouti.
Ericsson also said last week that it would replace its under-fire chair Ronnie Leten, former chief executive of Electrolux, with Jan Carlson, a board member for the past six years and the current chair and former chief executive of Autoliv, a Swedish car components maker.
Cevian Capital, Europe’s largest activist investor, has criticised Ericsson’s board, saying weaknesses in its corporate governance were costing shareholders billions of dollars.
In the fourth quarter, Ericsson said its revenues increased 21 per cent to SKr86bn ($8.4bn). But its operating profit fell by a third to SKr7.9bn, below analyst expectations.
Börje Ekholm, Ericsson’s chief executive, said he expected profit margins in its networks business to continue to fall during the first half of this year. He added that group adjusted operating earnings would be lower in the first quarter than 2022’s SKr5bn. Analysts had been expecting about SKr6.5bn in the first quarter.
Gardiner said the “unusual step” of providing short-term margin guidance was welcome but showed “the depth of troubles” in the first half.
The Swedish group, rival to China’s Huawei and Finland’s Nokia, has launched a SKr9bn cost-cutting programme and said it expected to see the effects of that in the second quarter. It has also started to sell some peripheral businesses.