Ericsson to Take Large Provisions as New CEO Sets Out Strategy

Ericsson will refocus its business for managed services, explore options for its loss-making media arm and take several writedowns, in a first move from its new CEO to lead the telecoms equipment maker out of its worst crisis in a decade.

Veteran board member Borje Ekholm took over as CEO in January and a new strategy has been widely expected by the market since then, as the firm grapples with shrinking markets and fierce competition from China's Huawei and Finland's Nokia.

The Swedish company said it would take provisions of an estimated SEK 7-9 billion ($797 million-$1.02 billion) in the first quarter related to recent negative developments in certain large customer projects.

"What has happened in the first quarter that makes them take provisions of 7 to 9 billion? It's a lot of money. It seems very strange to me," said Inge Heydorn, fund manager at Sentat Asset Management, who has a short position in Ericsson.

The company will also write down assets in the first quarter, with an estimated impact on operating income of SEK 3-4 billion ($342-$456 million), it said in a statement. It estimated restructuring charges would amount to SEK 6-8 billion in 2017, of which it would book 2 billion in the first quarter.

Ekholm said he expected significant improvements in 2018.

"Beyond that I am convinced that Ericsson, on a sustainable basis, can at least double the 2016 Group operating margin, excluding restructuring charges," he said.

© Thomson Reuters 2017