Ericsson losses widen amid overhaul, R&D spending

STOCKHOLM–Telecommunications-equipment company Ericsson AB’s ERIC, -0.13% second-quarter losses widened significantly as the company continues restructuring while investing heavily in research and development, but margins continued developing toward target levels, it said Wednesday.

Ericsson’s second-quarter net loss ballooned to 1.8 billion Swedish kronor ($204.1 million) from SEK457 million as sales fell 1% to SEK49.81 billion. Analysts polled by FactSet had expected a net loss of SEK261 million on sales of SEK48.25 billion.

The gross margin rose to 34.8% from 29.1% and the operating margin was 0.3% from a negative margin of 1.1%.

"We continue to execute on our focused business strategy and are tracking well toward our 2020 target of an operating margin of at least 10%," said Chief Executive Borje Ekholm.

Despite continuing to increase investments in its networks unit as it gears up for the industry shift to fifth generation–5G–networks, margins in the unit improved on the year. Networks sales rose 2% on year after seeing strong growth in North America, driven by investments in 5G readiness. All major operators in the region are preparing for 5G, Ericsson said.

However, strength in North America was partly offset by lower sales in Southeast Asia, Oceania and India and in the Middle East and Northeast Asia, it said.

In the quarter, Ericsson said it cut more than 2,000 jobs, bringing the total number of layoffs since launching its reduction activities in the second quarter last year to 20,500.

The company said it has completed its SEK10 billion cost-reduction program and the effects are starting to show in earnings, mainly through lower service delivery costs and common costs.

The Radio Access Network equipment market is still estimated to fall 2% in 2018 and restructuring charges are still estimated at between SEK5 billion and SEK7 billion, it said.

"We see strengthened momentum for 5G in the quarter and it is clear that our 5G-ready portfolio is attractive and competitive in the market," Mr. Ekholm said. "We have gradually improved the cost position and will continue to have a strict cost focus in order to further increase competitiveness and efficiency."

Write to Dominic Chopping at [email protected]; @domchopping, @WSJNordics

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