Ericsson Projects Slower Growth for Wireless-Network Marketby
Ericsson’s pact with Cisco lets it sell more complete systems
Ericsson forecasts rising costs for savings plan to 2017
Ericsson AB cut its forecast for growth in the market for wireless-networking equipment as carriers hold back on spending and predicted higher expenses from a restructuring plan, sending its shares down as much as 5.9 percent.
The world’s biggest maker of wireless-network gear predicted that market will grow 1 percent to 3 percent a year on average through 2018, trimming an earlier forecast of growth of 2 percent to 4 percent through 2017. The shares fell 4.4 percent to 83.05 kronor at 12:48 p.m. in Stockholm.
Ericsson may be the biggest maker of wireless networks powering mobile phones, but as many carriers have already built speedier fourth-generation systems the pace of expansion is slowing, forcing the Swedish company to seek others ways to tap into mobile data growth. Ericsson said Monday it’s partnering with Cisco Systems Inc. to expand its offering as Internet traffic soars. The companies predict added revenue of $1 billion or more each by the end of 2018 from the partnership.
With Ericsson’s “high exposure to radio access and a risk that market could peak shortly, we are not very comfortable with our organic growth forecast for 2016-2017,” Sebastien Sztabowicz, an analyst at Kepler Cheuvreux with a hold rating on the stock, said in a note. He still sees the company’s margins improving over the coming two years.
Nordic rival Nokia Oyj is close to completing its $17.6-billion purchase of France’s Alcatel-Lucent SA to gain scale in research and development and Internet-protocol routing, a technology that lets data travel more efficiently through a network. Ericsson’s pact with Cisco, the largest maker of routers and switches, allows both to sell more complete network systems to carriers seeking to cope with the flood of data resulting from the increasing popularity of smart devices.
The market for telecommunications services will grow 3 percent to 5 percent a year on average to 2018, while support solutions will increase by 7 percent to 9 percent, Ericsson said on Tuesday as the company host analysts and investors at a capital markets day at its headquarters in a Stockholm suburb.
The network maker said it now expects restructuring charges of 3.5 billion kronor ($403 million) to 4.5 billion kronor from its plan to cut costs by 9 billion kronor annually by 2017. It had previously predicted costs of 3.5 billion kronor to 4 billion kronor.