Ericsson said it posted 8 percent drop in revenue to SEK 49.9 billion with a net loss of SEK 1 billion in the second quarter of 2017.
Sales, adjusted for comparable units and currency, fell 13 percent.
The RAN equipment market for 2017 is estimated to show a high single-digit percentage decline compared with previous estimate of 2 percent to 6 percent.
Gross margin was 27.9 percent (32.3 percent). Gross margin, excluding restructuring charges, was 29.8 percent (33.2 percent).
Operating income was SEK -1.2 b. Operating income, excluding restructuring charges was SEK 0.3 b., with a YoY decline in all segments.
Networks operating margin was 7 percent. Operating margin, excluding restructuring charges, declined to 10 percent (13 percent) negatively impacted by continued lower software sales.
IT & Cloud operating income was negatively impacted by less capitalization of development expenses.
Planned cost reduction activities will be accelerated, due to current market environment, to achieve an annual run rate reduction of at least SEK 10 b. by mid-2018.
The company sees an increased risk of market and customer project adjustments with an estimated negative impact on operating income of SEK 3-5 billion for the coming 12 months.
Due to technology and portfolio shifts capitalization of costs will be reduced and is estimated to result in a net negative impact on operating income of SEK -2.9 (1.3) billion in the second half 2017, with no impact on cash.
Borje Ekholm, president and CEO of Ericsson, said: “Considering the 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 billion for the coming 12 months, of which 30 percent is estimated to impact cash,” Borje Ekholm said.
Ericsson will accelerate actions to meet target of doubling the 2016 operating margin beyond 2018. Actions will be taken primarily in service delivery and common costs and do not include R&D. Its plan is to implement cost savings with an annual run rate effect of at least SEK 10 billion by mid-2018, of which approximately half will be related to common costs.
The decline in the Networks result in the quarter was mainly caused by lower software sales, driven by two key factors; unusually strong software sales in the second quarter last year and cautious mobile broadband investment levels.
Performance improvements in Networks will be generated through both the continued ramp-up of Ericsson Radio System (ERS) and cost reductions, mainly in service delivery. The ERS continues to prove its competitiveness and now represents 49 percent of radio unit deliveries in the quarter.
Ericsson started to increase R&D investments in Networks with a total increase of SEK 0.2 billion in the quarter.
The work to refocus our Managed Services business to improve profitability is well underway. Ericsson has identified 42 contracts, with sales of SEK 7 billion in 2016, for the purpose of exiting, renegotiating or transforming.
Ericsson has either exited, renegotiated or transformed nine of these contracts resulting in an annualized profit improvement of approximately SEK 140 million going forward.
