Ericsson shares surged almost 10% Friday morning as investors rallied around news that the company’s core networks business is becoming more profitable. The company reported overall revenue of $5.9 billion for the quarter, and a net loss of half a billion dollars.
Network products and services account for three-quarters of Ericsson’s revenue, and although sales declined during the third quarter, CEO Börje Ekholm said adjusted network sales are actually increasing.
“Sales in networks grew, adjusted for currency and the previously communicated rescoped managed services contract in North America,” Ekholm said. Ericsson’s managed services contract with Sprint was scaled back more than a year ago. The vendor said this summer that it is in the process of reevaluating 42 managed services contracts worldwide, which it will “either exit, renegotiate or transform.”
Ekholm said that the adjusted profit margin for the company’s networks business was also profitable during the third quarter.
“Higher hardware capacity sales and a more competitive product portfolio resulted in an adjusted operating margin of 11%,” he said. “The Ericsson Radio System portfolio, accounting for 55% of total radio volumes year to date, is proving competitive, contributing both to improved earnings and a stronger market position.”
Job cuts also contributed to improved profitability at Ericsson. The company has been reducing its workforce for several years now, even as it increases its focus on research and development.
“Activities to reduce the workforce have been initiated in many markets. In the quarter,
there was a net reduction of 3,000 employees despite 1,100 new recruitments in R&D,” Ekholm said.
Ekholm took over as CEO of Ericsson early this year, after serving on its board of directors for roughly a decade. Previously Ekholm was CEO of Patricia Industries, part of a Swedish investment firm that is Ericsson’s largest shareholder.