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Ericsson sees up to 15b kronor in costs as revamp begins
[HELSINKI] Ericsson AB will book extra expenses of as much as 15 billion kronor (S$2.37 billion) in the first quarter as its business sputters, highlighting the challenges for new chief executive officer Borje Ekholm as he tries to stabilize the Swedish wireless network maker.
Earnings this quarter will be cut by 7 billion kronor to 9 billion kronor because of "recent negative developments related to certain large customer projects", Ericsson said in a statement Tuesday.
Restructuring charges will be about 2 billion kronor in the quarter as Mr Ekholm accellerates cost reductions. The company will also write down some assets, hurting operating income by 3 billion kronor to 4 billion kronor, and plans to start exploring strategic opportunities for its media business.
Mr Ekholm has already slashed Ericsson's dividend for the first time in eight years as the new CEO tries to reverse a sales plunge caused by fierce competition amid a slowdown in spending by wireless carriers.
Huawei Technologies Co dethroned Ericsson to become the world's biggest supplier of mobile infrastructure in the third quarter, according to IHS Markit.
"For some time Ericsson has been challenged on both technology and market leadership and the group strategy has not yielded expected returns," Mr Ekholm said in the statement.
"To enable us to immediately take action and move with speed in execution we are today outlining our path to restoring profitability."
Among his strategic moves, Mr Ekholm will remove a layer from Ericsson's top management and reduce 10 geographical business areas into five. Restructuring charges for this year will be 6 billion kronor to 8 billion kronor, up from a previous estimate of 3 billion kronor.
A former McKinsey consultant, Mr Ekholm was appointed to right Ericsson after a troubled 2016, in which the company ousted CEO Hans Vestberg and blindsided investors with a massive profit warning. His main message since he took the job has been that the company needs to focus on profitability and cash flow to be able to invest in technologies that will be crucial for growth in the future.
This month, wireless carrier VimpelCom Ltd said it terminated a network contract with Ericsson early, picking Huawei as a partner to manage its phone networks in Russia. Ericsson also recently lost a contract to manage the Italian network of VimpelCom's joint venture with CK Hutchison Holdings Ltd in Italy.