Ericsson reported a further slowdown in sales in the second quarter, with revenues falling 11 percent year-on-year to SEK 54.1 billion. The economic weakness in areas such as Brazil, Russia and the Middle East impacted sales, and the company's main growth markets, China and North America, posted flat sales; sales grew only in southeast Asia and Oceania. Ericsson said it expects the sales trend to continue in the second half of the year.
A larger share of mobile broadband coverage contracts and services business led to a fall in the gross margin to 32.3 percent from 33.2 percent a year ago, and the operating margin dropped to 5.1 percent from 5.9, also impacted by a negative revaluation effects of currency hedge contracts. Net profit declined 26 percent year-on-year to SEK 1.6 billion, and operating cash flow was a negative SEK 0.7 billion.
Ericsson said it will take further actions to reduce costs, targeting a new annual run rate of operating expenses, excluding restructuring charges, of SEK 53 billion in the second half of 2017, compared to SEK 63 billion in 2014. This is double its previous target.
In Q2, operating costs were down by SEK 2.1 billion year-on-year to SEK 41.1 billion due to the ongoing cost-reduction programmes to save SEK 9 billion by next year. In addition, Ericsson said it plans to reduce R&D investments in IP and capture efficiency gains from the new company structure.
The company also said it had a good start to its partnership with Cisco, with more than 30 deals closed already, laying a base towards the targeted sales of USD 1 billion for 2018. Over 200 more deals are in the pipeline.
