What happened
Shares of Telefonaktiebolaget LM Ericsson (ERIC -2.00%) fell as much as 10.4% on Wednesday, goosed by a mixed fourth-quarter earnings report.
So what
The Swedish telecom equipment and services veteran's fourth-quarter sales fell 12% year over year, landing at 57.2 billion Swedish crowns or $7.3 billion. On the bottom line, the year-ago period's earnings swung to an adjusted net loss of $0.15 per American depository share. Analysts had been looking for earnings of $0.03 per share on sales near $7.1 billion, so Ericsson exceeded one target but fell far short of the other.
Image source: LM Ericsson.
Now what
Management admitted that these results were "far below our long-term ambition," due to continued weakness in LTE network sales to China.
Ericsson slashed its workforce by 10%, or 10,000 employees, during the quarter, while selling a 51% ownership stake in its Media Solutions business to private equity firm One Equity Partners. This is a company in crisis, and management is acting accordingly.
CEO Borje Ekholm is working on a turnaround based on the upcoming need for 5G wireless infrastructure tools. Ekholm's long-term targets include $25 billion of top-line revenues in fiscal year 2020 with a 10% net margin. Ericsson is already there in terms of top-line sales but revenues are trending downward at the moment. The net margin goal is more ambitious, since that metric dropped to a negative 17% in 2017.
The 5G-based business model looks like the right path forward, but the company has a lot of work to do. I wouldn't be a buyer of Ericsson today, even at a sudden 10% discount.
