Earlier today, Sweden’s Ericsson’s reported a net loss in the period was 1 billion kronor ($120 million), a marked deterioration from last year’s equivalent of a 1.6 billion-kronor profit. Overall sales slumped 8 percent to 50 billion kronor. Investors were clearly taken off guard. Shares finished down almost 17% on the Nasdaq.
Ericsson blamed persistent low investment by telecoms companies. But they are facing mounting competition from China’s Huawei and Finland’s Nokia (now including Alcatel Lucent). Sales throughout the emerging markets as well as weak emerging markets were disappointing.
Ericsson’s CEO Borje Ekholm was quite gloomy, “Considering the current market environment, the company position, and the more focused business strategy, we continue to assess risk exposure in ongoing contracts. Depending on the outcome, we see an increased risk of further market and customer project adjustments, which would have a negative impact on results, estimated to SEK 3-5 b (US$360-600million) for the coming 12 months.”
Ekholm’s response is to cut costs. “One key component in our focused business strategy is to reduce costs and increase efficiency. In light of the current market outlook, we will accelerate our actions to ensure that we can meet our target of doubling the 2016 operating margin beyond 2018.”
Is cutting costs a strategy? That may depend on whether you are an accountant or an engineer. If you assume that the main goal of every business is to survive, then cutting costs may help Ericsson to do so.
The quarterly result is available at https://www.ericsson.com/assets/local/investors/documents/financial-reports-and-filings/interim-reports-archive/2017/6month17-en.pdf