Revenues showed little change from the trend in previous quarters, dropping by 11 percent year-on-year to SEK 46.4 billion. Adjusted operating profit declined to SEK 1.1 billion from SEK 4.1 billion a year ago due to lower sales and lower gross margin.
The main networks business had an adjusted operating margin of 12 percent, better than Q4 thanks to an improved business mix and a more competitive portfolio, Ericsson said. However, the IT & Cloud business remained deeply in the red, with an operating loss of SEK 9.0 billion, and the media division also recorded a loss, at SEK 2.8 billion. Ericsson said it's started work on trying to improve results at IT& Cloud and consider "strategic opportunities" for the media activities.
While Ericsson had flagged some of the Q1 charges in its restructuring plan announced in March, the contract provisions were new. The company said these were "triggered by negative developments late in the quarter related to certain customer contracts", prompting a more cautious view on the risk associated with certain large, complex contracts.
The charges relate to customer settlements and revaluation of customer discounts, due to lower projected customer volumes, which reduced net sales by SEK 1.4 billion, and an extra SEK 1.5 billion in costs due to reassessment of the value of trade receivables. The remaining SEK 5.5 billion is provisions for additional project costs, mainly related to certain transformation projects in IT & Cloud, which due to recent negative developments are not expected to be covered by future project revenues.
Ericsson said the quarterly results were not satisfactory and reiterated its plans to lower costs and restructure in order to improve profitability already in 2018 and later double the underlying 2016 operating margin. For the market, the company expects the trends of 2016 to continue this year, and the RAN equipment market will shrink by an estimated 2-6 percent in USD in 2017. Sales in Q2 and Q3 will remain under pressure from a renewed managed services contract with reduced scope in North America, and a refocusing of the managed services and network roll-out portfolio will also reduce sales going forward.
