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Ericsson Posts Q2 Loss On Weak Sales; Warns On Outlook; Stock Dips

Shares of Ericsson (ERIC) were declining around 10 percent in the early morning trading after the Swedish telecom operator reported Tuesday a net loss in its second quarter amid weak net sales.

Looking ahead, the company said it sees an increased risk of further market and customer project adjustments with an estimated negative impact on operating income of 3 billion kronor to 5 billion kronor for the coming 12 months.

Based on the development in the first half of the year, the company’s current view of the Radio Access Network or RAN equipment market outlook is in line with external estimates of a high single-digit percentage decline for the full year 2017. This is to be compared with the company’s previous estimate of negative 2% to negative 6%.

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 2.9 billion Swedish kronor in the second half 2017, with no impact on cash.

The company added that addressing low-performing operations in Managed Services and optimizing the offering in Network Rollout are expected to reduce full-year sales by up to 10 billion kronor by 2019.

President and CEO of Ericsson said, “We are not satisfied with our underlying performance with continued declining sales and increasing losses in the quarter. Execution of our focused business strategy is gaining traction. However, in light of current market conditions, we are accelerating the planned actions to reduce costs.”

In light of the current market outlook, planned cost reduction activities will be accelerated to ensure that the firm can meet target of doubling the 2016 operating margin beyond 2018. The company plans to achieve an annual run rate reduction of at least 10 billion kronor by mid-2018, of which approximately half will be related to common costs.

The company noted that actions will be taken primarily in service delivery and common costs and do not include R&D.

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