Ericsson reported Q3 net sales of SEK 51.1 billion down 14% from a year ago for comparable units. The drop was mainly driven by segment Networks where reported sales declined by 19%.
Gross margin declined to 28.3% (33.9%) YoY following lower mobile broadband capacity sales, a higher share of services sales and lower sales in segment Networks.
“The negative industry trends from the first half of 2016 have further accelerated, impacting Q3 sales, 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,” stated Jan Frykhammar, President and CEO of Ericsson.
Notes from the quarterly report:
- Sales in regions such as Latin America, Middle East and Sub-Saharan Africa were impacted by a weak macro-economic environment. This negative development accelerated in the third quarter and had a negative effect on both mobile broadband coverage and capacity sales in these markets.
- Capacity sales in Europe were lower than a year ago.
- 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. In addition, one customer continued to reduce their investments in mobile broadband. 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.
- Sales in the targeted growth areas showed resilience and grew by 3% YoY, driven by Cloud, IP and services related to OSS and BSS. In total, the targeted growth areas now account for 21% of group sales.
- The strategic partnership with Cisco has to date generated more than 60 deals.
- A renewed managed services contract in North America, with reduced scope, will impact sales negatively.