Ericsson sees signs of improvement after fourth straight quarterly loss

Competition from China’s Huawei and Finland’s Nokia has hurt Ericsson. (Reuters)
Updated 20 October 2017
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Ericsson sees signs of improvement after fourth straight quarterly loss

STOCKHOLM: Mobile network gear maker Ericsson said it had detected signs of improvement after posting a steeper than expected quarterly loss on Friday, helping send its languishing shares up as much as 5 percent.
Once the world’s top maker of mobile network equipment, Sweden’s Ericsson faces a declining market for older network 2G, 3G and 4G gear while needing to step up investments in next-generation 5G equipment to retain market share.
After replacing management in 2016, Ericsson has embarked on a restructuring program to exit unprofitable network services deals and reverse course after an ill-timed bid to diversify beyond core telecom markets.
“We see a stabilized performance in a challenging market. We also see signs of improvements in our performance,” Chief Executive Boerje Ekholm said on a conference call.
“Yes, there is still a long way to go ... but we are also seeing signs that we are stabilizing our performance and that we are getting control of our projects and products,” Ekholm said.
The Swedish company posted its fourth consecutive money-losing quarter, with an operating loss of 4.8 billion Swedish crowns ($588.7 million) that was 37 percent worse than the average loss estimated by analysts.
Third-quarter sales of 47.8 billion crowns were down 3 percent in constant currencies and the company warned its usual year-end sales bounce would not be as big as in previous years.
Competition from China’s Huawei and Finland’s Nokia , as well as weak emerging markets and falling spending by telecoms operators, has hurt Ericsson, while demand for next-generation 5G technology is still several years away.
While it cut 3,000 jobs during the third quarter, it added 1,100 recruits in research and development in order to be ready to meet eventual demand for 5G networks.
Sales were stable in North America while growing in Brazil and the Middle East, but these positive trends were offset by a decline in China, Ericsson said.
In the current quarter, it said network sales would not grow as fast because Chinese network operators are slashing spending on higher speed 4G mobile networks after a massive building spree in recent years.
Ericsson said it had increased its share of 4G networks in China, which was vital to ensure it wins repeat business in future 5G network there. China will put pressure on overall fourth-quarter margins in its network business, it said.
It is also renegotiating or exiting unprofitable service contracts in its networks unit as it aims to double its operating margin to 12 percent after 2018, a target analysts see as unlikely. It has exited or renegotiated 13 out of 42 contracts it considers problematic, improving profits.
Restructuring weighed on the quarter as the company repeated it aimed to reduce costs by at least 10 billion crowns, or around $1.2 billion, from the middle of next year.
Ericsson shares shot up just over 5 percent in early trade and were up 3.3 percent at 50.4 crowns by 0942 GMT, but remain some 4 percent lower for the year to date.


Two US airlines cut China routes as Beijing rivals turn up heat

Updated 16 min 40 sec ago
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Two US airlines cut China routes as Beijing rivals turn up heat

  • ‘The two China routes ... have been colossal loss makers for us’
  • Chinese passengers arriving at US airports are expected to nearly triple to 12.8 million in 2024 from 4.3 million this year

DENVER/SHANGHAI: Two US airlines on Tuesday cut routes between China and the US, underscoring increasingly tough competition from state-backed Chinese rivals as they aggressively expand their fleets with cut-price tickets.
American Airlines, the largest US carrier by passengers, said it would drop a route between Chicago and Shanghai, canceling the second direct flight from the US city to China in four months. It had canceled a flight to Beijing in May, although it still operates daily flights to the capital from Los Angeles and Dallas-Fort Worth, Texas.
“The two China routes ... have been colossal loss makers for us,” said Vasu Raja, vice president of network and schedule planning, adding that high fuel costs had also made the route unsustainable.
Hawaiian Airlines said it would from October suspend its thrice-weekly nonstop service between Honolulu and Beijing, which it opened in 2014, citing slower-than-expected growth in demand.
Competition from Chinese airlines is expected to grow with the anticipated easing of China’s near-decade-old “one route, one airline” policy, which would allow more local airlines to fly long-haul international routes.
“US airlines are at a severe disadvantage,” said Mike Boyd, president of aviation forecaster Boyd Group. “The majority of demand is China-generated, and that gives Chinese carriers the advantage.”
Chinese passengers arriving at US airports are expected to nearly triple to 12.8 million in 2024 from 4.3 million this year, and the profile is shifting from groups to independent travelers, according to Boyd Group.
United Airlines President Scott Kirby said Shanghai and Beijing had rebounded for the airline after several years of weakness, although revenue per available seat mile (RASM) was below levels of two or three years ago.
“We’ve had several years of weakness as there was an awful lot of capacity growth out of Beijing and Shanghai,” Kirby said on the sidelines of the International Aviation Forecast Summit in Denver.
American and Hawaiian said the route cancelations were unrelated to demands placed by China’s civil aviation regulator on foreign airlines to amend the way they referred to Hong Kong, Macau and Taiwan on their websites.
Chinese state media had earlier this month singled out the two companies and other US airlines as being among the last firms to comply with China’s demands.
“That issue of how Taiwan was displayed on our website had absolutely zero impact on this decision,” Hawaiian’s chief executive, Peter Ingram, said. “Our economic evaluation was well underway long before that issue arose.”