Ericsson, the Swedish telecommunications-equipment company, has released its third-quarter guidance, which fell short of analyst expectations. As a result, the company’s shares dropped by as much as 11%. Ericsson anticipates that the market conditions in the July-to-September period will be similar to those in the second quarter. This includes a decline in demand in North America. The company expects its adjusted earnings before interest, taxes, and amortization (Ebita) margin to be either in line with or slightly higher than the 5.7% achieved in the second quarter. However, analysts had anticipated an Ebita margin of around 9.9% for the third quarter.
Despite the disappointing guidance, Ericsson remains confident about the market’s recovery. The company believes that the increasing growth of data traffic will lead to more network spending and reduced inventory levels at operators. Although the exact timing of increased network investments is uncertain, Ericsson expects a gradual recovery towards the end of 2023 and improvement in 2024.
In the second quarter, Ericsson’s key networks unit experienced an 8% decline in sales compared to the previous year. Strong sales in India partially offset a significant sales drop of 50% in North America, where customer spending has reduced following high investment levels in 2021 and 2022.
In terms of financials, Ericsson reported a net loss attributable to shareholders of 686 million Swedish kronor ($67.2 million), compared to a profit of SEK4.5 billion a year earlier. However, sales increased by 3% to SEK64.44 billion. Analysts had expected a net loss of SEK1.27 billion on sales of SEK63.94 billion.
The restructuring charges of SEK3.1 billion in the quarter, primarily from redundancy expenses as part of cost-cutting measures, weighed heavily on the earnings. However, an intellectual-property deal provided some support to the company’s profits.
Looking ahead, Ericsson’s Chief Executive Borje Ekholm stated that the company aims to achieve the lower end of its long-term target range of a 15%-18% Ebita margin by 2024, based on the expected recovery of the mobile networks market towards the end of this year.
As of 1330 GMT, shares of Ericsson traded 10% lower at SEK52.62.