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Ericsson Q2 clouded by restructuring charge

Ericsson Q2 clouded by restructuring charge
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First Published: Thu, Jul 21 2011. 02 38 PM IST
Updated: Thu, Jul 21 2011. 02 38 PM IST
Stockholm: Ericsson reported lower-than-expected earnings on Thursday, a hefty charge for job cuts taking the gloss off strong quarterly sales as the mobile networks maker continued to enjoy smartphone-driven data demand.
Ericsson has been buoyed in recent quarters by rising data traffic, as consumers’ switch to smartphones and tablet computers fuels a boom in mobile broadband.
“Group sales in the quarter increased by 14% year-over-year driven by a continued strong demand for mobile broadband,” the group said in a statement.
However a one-off charge of 1.7 billion crowns, of which 1.3 billion related to the staff cuts, led to second quarter earnings before interest and tax excluding joint ventures landing at 5.0 billion crowns, falling short of a forecast for 6.3 billion in a Reuters poll.
Sales were 54.8 billion crowns versus a forecast 54.9 billion. Ericsson said they had been affected by the strong Swedish crown, a theme echoed by other top Swedish companies.
By 0708 GMT shares in Ericsson were down 7.5% at 84.85 crowns.
“It (Ericsson earnings) was a touch light on the topline. And of course due to restructuring measures not least in Sweden they have missed on the operating income numbers,” said Nicolas von Stackelberg at Macquarie Research.
Ericsson has been cutting back on staff at its head office Stockholm to save money over the longer term but underestimated the number of voluntary redundancies and early retirements.
It raised its forecast for the total cost of restructuring this year by 50% to 3 billion crowns.
“There were restructuring charges which most people had not expected. If one strips those out, then I think that sales and even the gross margin and the earnings result were more or less as expected,” said Greger Johansson at analysis firm Redeye.
Although the data demand has boosted Ericsson, some of the networks business is not so profitable for the company. It saw more of this coming through later in the year.
“The network modernisation projects in Europe, with their lower margins, will accelerate during the second half of 2011,” the group said.
Ericsson stuck to a recent forecast for its network market to rise 6-8% over the 2010-13 period.
It said it had seen a limited impact from the Japanese earthquake in the second quarter.
“Our supply chain has recovered quicker than expected and lead times for our products are being gradually restored to normal levels,” the group said.
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First Published: Thu, Jul 21 2011. 02 38 PM IST