Ericsson announced plans to step up its cost-cutting efforts after report first-quarter revenues fell 2 percent year-on-year to SEK 52.2 billion. The company said it saw a slowdown in Europe after completion of mobile broadband projects there last year as well as economic weakness in some emerging markets. Growth remained strong in mainland China, and sales also grew in North America and southeast Asia.
The company achieved already in Q1 SEK 500 million of its targeted SEK 9 billion in cost savings, helping the operating margin improve to 6.7 percent from 4.0 percent a year ago. The higher margin came from improvements in Networks, partly offset by lower profitability in Global Services, Ericsson said. In addition to the SEK 9 billion in cost savings by the end of 2017, Ericsson said it started measures in the quarter to adapt the operations to the lower mobile broadband project volumes. This will mainly affect the service delivery activities and result in higher restructuring charges this year of SEK 4-5 billion in total, versus the previous estimate of SEK 3-4 billion.
In addition, the company announced separately a new business structure based around five units, to help increase its focus on core business and growth areas and further drive efficiency. "We are not satisfied with our overall growth and profitability development over the past years and I am convinced this will make us more competitive and enable us to grow both our company and our earnings," said CEO Hans Vestberg in a statement.
Ericsson's net profit increased to SEK 2.1 billion from SEK 1.5 billion a year ago, and cash flow from operating activities was a negative SEK 2.4 billion in Q1, improving from a negative SEK 5.9 billion in Q1 2015.
