Ericsson profits plunge in 2016 but share rises

2 min

Stockholm (AFP)

Swedish telecoms equipment maker Ericsson said Thursday its earnings plunged in 2016 on weak demand for mobile broadband networks in its developing markets, which were hit by economic slumps.

While the earnings report was gloomy reading, including a loss in the fourth quarter, the Ericsson share price rose at the opening of the Stockholm stock market.

Investors were buoyed by new chief executive Borje Ekholm's goal of "prioritising profitability over growth."

At 0830 GMT, the share price was up 5.68 percent in a market up by 0.75 percent, but had within an hour lost more than half that ground. The higher share price did little however to make up for the 35 percent the stock lost in 2016.

Ericsson registered a full-year net profit of 1.9 billion kronor (200 million euros, $218 million), down by 86 percent, impacted by lower sales and restructuring costs of 7.6 billion kronor to finance 5,000 job cuts worldwide, including 3,000 in Sweden.

Ericsson had an annus horribilis in 2016, costing Hans Vestberg his job as chief executive in July. Sales ticked in at 222 billion kronor, down 10 percent, a decline slowed by positive currency effects.

For the fourth quarter, the company posted a loss of 1.6 billion kronor, compared to a profit of 7.0 billion a year earlier.

The company's networks business has encountered strong headwinds, both in the markets of the future such as South America, the Middle East and Africa, which are experiencing difficult economic times, as well as in Europe and North America, which have reached saturation point.

Ericsson plans to continue its transformation and refine its strategy to "focus investments into areas where we both can and must win", said Ekholm, who took over the company on January 16.

A savings plan launched by Ericsson in November 2014 aims to achieve annual operating costs of 53 billion kronor, excluding restructuring charges, by the second half of 2017.

In 2016, those costs totalled 56.4 billion.

Ericsson also announced, for the first time since 2008, that it would slash its dividend, from 3.7 kronor a year ago to one krona.