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October 24, 2015

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Ericsson’s profit and sales below forecasts in Q3

SLOWING demand for new mobile networks in China pushed third-quarter sales and profit for Sweden’s Ericsson below forecasts and reinforced concerns that another major growth market had passed its peak.

Like-for-like sales at Ericsson, the world’s biggest maker of mobile telecoms network equipment, dropped 9 percent in the third quarter, with declines in China and Europe.

Ericsson and industry rivals are in the middle of a decade-long investment cycle but initial build-outs of the latest high-speed 4G equipment are slowing in major markets such as China, Europe and the US.

Ericsson Chief Executive Hans Vestberg said the slowdown in China was not tied to the broader economic situation there and that it was normal for the pace of network spending to fluctuate between quarters.

“I cannot speculate when it will come back, but long-term, medium-term, I think 4G will continue to grow in China,” he said on a conference call. Reorganizations at Chinese operators may have contributed to lower spending, he added.

“The Chinese market that has been a significant contributor to systems sales for several quarters dropped 20 percent year over year and 1 percent from the second quarter,” said Bengt Nordstrom, head of telecoms consultancy Northstream.

“That indicates the 4G roll out in China has peaked.”

Ericsson has come under pressure after rivals Nokia and Alcatel Lucent agreed to merge in a 15.6-billion-euro (US$17.2 billion) deal to create the world’s second-largest mobile gear maker after Ericsson.

Ericsson’s like-for-like sales have been flat over the past three years and are down 7 percent so far this year, raising doubts over its prospects.

Late last year, Ericsson cut its growth forecasts for the network equipment market in coming years and financial analysts question where the company will find fresh impetus in 2016.

Like-for-like sales at the group’s mainstay networks unit, plunged 15 percent and were down in all regions of the world except for India and Southeast Asia.

While revenue had stabilized for Ericsson’s mobile broadband business in North America, which accounts for 21 percent of all network sales so far this year, it remained below the peak a year ago.


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