Shares of Ericsson experienced a significant decline in Stockholm trade, falling as much as 9%. The Swedish telecommunications equipment maker made the decision to withdraw its margin guidance for the upcoming year. Ericsson indicated that it would not provide any guidance beyond the fourth quarter.
Current Market Conditions
The company acknowledged that the market mix recovery is now in the hands of their customers. As a result, Ericsson has prudently planned for current market conditions to prevail until 2024. With this in mind, they are actively managing their business by focusing on cost management and operational efficiency. Ericsson believes that once the market recovers, they will be able to fully leverage their operations due to the actions being taken.
Third-Quarter Performance
Ericsson reported its third-quarter numbers following a previous warning issued last week. The company disclosed that it would take a 32 billion krona ($2.93 billion) writedown on its acquisition of Vonage, which was purchased for $6.2 billion last year. Consequently, Ericsson swung to a loss of 30.5 billion Swedish krona, with sales experiencing a 5% drop to 64.5 billion krona. The revenue fell short of estimates, coming in at 64.5 billion krona instead of the projected 65.62 billion krona (according to Visible Alpha).
Adjusted Earnings and Future Margins
Ericsson’s adjusted earnings before interest, tax, and amortization margin decreased from 11.3% to 7.3%. Looking ahead to the fourth quarter, the company expects a margin of approximately 10%. However, it is worth noting that Ericsson’s long-term margin target remains between 15% and 18%.
Impact on Nokia
Following Ericsson’s announcement, shares of its rival company Nokia also experienced a decline. Nokia saw a 4% drop in Helsinki.
In conclusion, Ericsson’s decision to withdraw its margin guidance for next year has impacted its stock performance. The company is actively managing its business and anticipating market recovery in the future.
