Ericsson Will Change Pricing, Cut Costs After Profit Miss

Thomas Seal and Rafaela Lindeberg, Bloomberg News

Plants surround a logo on the wall of the Ericsson AB stand on day two of the MWC Barcelona at the Fira de Barcelona venue in Barcelona, Spain, on Tuesday, March 1, 2022. Over 1,800 exhibitors and attendees from 183 countries will attend the annual event, which runs from Feb. 28 to March 3. Photographer: Angel Garcia/Bloomberg , Bloomberg

(Bloomberg) -- Activist investor, Cevian Capital AB, called Ericsson AB’s third-quarter results “disappointing” after the telecom network provider reported profit that missed analysts’ estimates. The stock dropped to its lowest level in more than two years.

“The earnings miss is driven by the divisions outside Networks, namely Cloud Software & Services and Enterprise,” said Christer Gardell, founder and managing partner of Cevian, which owns about 5% of Ericsson according to data compiled by Bloomberg. “Here, you must drain the swamp of losses.”

Adjusted operating profit was 7.2 billion Swedish kronor ($643 million) in the quarter, Ericsson said in a statement on Thursday. That missed analysts’ forecast for 8.51 billion kronor, according to the average of estimates in a Bloomberg survey.

The company, one of the world’s biggest providers of 5G networking equipment, said it would make pricing adjustments and find ways to manage margins. Ericsson Chief Financial Officer Carl Mellander said he’s looking broadly for ways to save money and could consider cuts to headcount, property holdings and energy use, though he said it’s still too early to say anything definitive on potential job losses.

Ericsson shares declined 11% to 64.05 kronor at 9:08 a.m. in Stockholm after previously dropping as much as 13%, falling to their lowest level since March 2020. The stock has declined 28% this year through Wednesday.

Rising energy costs are also making Ericsson’s customers more price sensitive, and the company is looking for ways to promote technology that’s more efficient, he said.

“Energy consumption has become, I would say, more and more important as part of that evaluation,” that carriers make about their network spending, Mellander said in an interview. “There many components there, but energy has really come up because of the climate, of course, CO2, but also the soaring energy prices.”

Revenue rose 21% in the quarter from a year earlier to 68 billion kronor, driven by network sales in North America. the company said. That beat analysts average estimate for 66.5 billion kronor, according to the Bloomberg survey.
The company said sales in the Cloud Software & Services segment were hurt by lower revenue from managed services and intellectual property. The unit’s management team is working to drive down costs, though “improvements in performance will be gradual,” Ericsson said in the statement.
The managed services business line suffered as customers in some regions, including Europe, are scaling back, renegotiating or in-housing some functions, Mellander said.
Ericsson bought Vonage Holdings Corp. this year for about $6.2 billion, it’s largest-ever acquisition, to build out its enterprise business and ramp up its cloud communications offering.

(Updates with share trading from first paragraph.)