The negative industry trends from the first half of 2016 have further accelerated, impacting Q3 sales of Ericsson, primarily relating to mobile broadband. The decline, in both mobile broadband coverage and capacity sales, was particularly strong in markets with a weak macro-economic environment. In addition, capacity sales in Europe were lower than a year ago. Gross margin declined YoY, following lower mobile broadband capacity sales, a higher share of services sales and lower sales in segment Networks.
Both reported sales and sales adjusted for comparable units and currency declined by 14% YoY and sales were particularly
weak at the end of the quarter. This shows an acceleration of the negative sales trends compared with the second quarter when
the decline in sales, adjusted for comparable units and currency, was 7% YoY. The decline was driven by segment Networks
where the reported sales decline worsened from 14% in Q2 to 19% in Q3.
Sales in North America declined, mainly due to lower sales in professional services. Sales in Mainland China declined by -7% YoY mainly due to lower 3G sales, while 4G deployments continued on a high level. In India the delayed spectrum auctions led to another slow quarter. The transition from 3G to 4G continued to contribute to sales growth in region South East Asia and Oceania.
Jan Frykhammar, president and CEO, Ericsson said: " The current industry trends indicate a somewhat weaker than normal seasonal sales growth between the third and fourth quarters. In addition a renewed managed services contract in North America, with reduced scope, will impact sales negatively. The current business mix of coverage and capacity sales in mobile broadband is anticipated to prevail in the short term."
Operating income declined following lower sales in segment Networks and a lower gross margin. The positive effect of the cost and efficiency program did not offset the sharp decline in gross income.
Gross margin declined to 28% following lower mobile broadband capacity sales, a higher share of services sales and
lower sales in segment Networks.
The CEO added that the company will implement further short-term actions mainly to reduce cost of sales, in order to adapt its operations to weaker mobile broadband demand. "Ericsson is in the middle of a significant company transformation. In addition, the rapid technology development, different and new customer requirements, as well as the convergence of IT, media and telecom, are posing both challenges and opportunities. Focus is on speed and fine-tuning of execution, supported by the new company structure which is designed for efficiency and effectiveness."