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Telecoms Under Pressure As Ericsson Sees Q3 Results 'Significantly Lower' Than Expectations

Telecoms Under Pressure As Ericsson Sees Q3 Results 'Significantly Lower' Than Expectations
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Telecom shares have come under pressure after Telefonaktiebolaget LM Ericsson (NASDAQ: ERIC) warned that third quarter results would be "significantly lower" than the expected levels.

The Swedish firm pointed out weak demand for mobile broadband, particularly in markets where there were weak macro-economic conditions. Furthermore, the company emphasized that the negative trend started in the first half of 2016.

Ericsson sees sales dropping by 14 percent on a year-over-year basis in the third quarter fueled by slower development in segment networks that witnessed 19 percent fall in sales. The lower volumes in segment networks, mobile broadband and increased service resulted in gross margin falling from 34 percent to 28 percent.

Related Link: The Worst Is Behind Ericsson, Says Credit Suisse

The company does not expect the trends to change in the near term. CEO Jan Frykhammar commented, "The negative industry trends have further accelerated affecting primarily Segment Networks. Continued progress in our cost reduction programs did not offset the lower sales and gross margin. More in-depth analysis remains to be done but current trends are expected to continue short-term."

The company will disclose a full report on October 21.

Predictably, the following stocks have come under pressure in Wednesday's pre-market trading:

  • Ericsson dropped to $5.80 after losing $1.21, or 17.26 percent.
  • Nokia Corp (ADR) (NYSE: NOK) fell $0.25, or 4.64 percent, to $5.14.

The following stock was down in Tuesday's after-hours:

  • Alcatel Lucent SA (ADR) (NYSE: ALU) down 4.61 percent at $3.31, closed Tuesday's regular session at $3.47.

Bucking the trend, however, were Motorola Solutions Inc (NYSE: MSI), up 1.03 percent at $74.22 minutes after Wednesday's open, and Vodafone Group Plc (ADR) (NASDAQ: VOD), which was slightly up (+0.12 percent) at $27.89.

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