Shares of Ericsson ADR (NASDAQ: ERIC) plummets over 6.5% to $5.53 in early session on Tuesday as the Ericsson of Sweden announced first-quarter core earnings that above estimates, helped by higher sales of 5G equipment in regions such as India, although sales in more established areas declined and eroded margins.
The business has lowered expenses in numerous locations to offset lower investment by telecom operator clients, and it expects the slower rate of deployment to continue into the third quarter.
It intends to save another 2 billion crowns ($193 million) in costs after announcing intentions to lay off 8,500 people in February.
The restructuring expenses for the whole year might be over 7 billion crowns, with more than half of that booked in the current quarter, according to a statement.
The quarter’s sales increase came mostly from severely price competitive areas such as India, rather than high-margin markets such as the United States.
Ericcson’s stated gross margin for the quarter decreased from 42.3% to 38.6%.
“India is strong and a good example where our sales are up five times,” said Carl Mellander, Chief Financial Officer. According to him, India is Ericsson’s second largest market after the United States.
Mellander will leave his position at the conclusion of the first quarter of 2024.
Net sales increased 14% to 62.6 billion crowns, above expectations of 60.43 billion.
While India increased equipment sales, experts said the net gain was mostly driven by Ericcson’s $6.2 billion acquisition of cloud communication startup Vonage last year.
“Looking at the networks business in isolation, sales actually declined slightly as a number of operators dialed down capex and inventories,” said Mads Lindegaard Rosendal of Danske Bank Credit Research.
According to Refinitiv data, the company’s quarterly adjusted operational earnings, excluding restructuring, decreased to 4 billion Swedish crowns from 4.8 billion crowns a year ago, exceeding analysts’ mean expectation of 3.28 billion.
