November 8, 2017 / 2:20 PM / in a year

Ericsson extends time to reach target, Cevian calls for more cost cuts

STOCKHOLM (Reuters) - Mobile network equipment maker Ericsson (ERICb.ST) pushed back the date it would hit its profit margin target by two years on Wednesday, dampening hopes of a quick recovery and prompting one of its main shareholders to call for deeper cost cuts.

FILE PHOTO: Borje Ekholm, President and Chief Executive Officer of Ericsson, delivers his speech at Mobile World Congress in Barcelona, Spain, February 27, 2017. REUTERS/Eric Gaillard /File Photo

Cevian Capital owns 7.3 percent of Ericsson shares and is Ericsson’s biggest owner by capital.

“We are disappointed that Ericsson extended the time horizon for reaching its margin targets,” Christer Gardell, managing partner at activist investor Cevian Capital, wrote in an email to Reuters.

“We want to see a significantly increased execution pace and a higher ambition for cost reductions.”

Shares in the Swedish company fell more than 3 percent on Wednesday after it said it did not expect to reach its operating margin target of 12 percent until after 2020.

It blamed a stronger Swedish crown against the U.S. dollar and weaker demand for its equipment as it scrapped a target it reiterated less than three weeks ago - although investors had doubted it would hit the previous deadline of 2018.

“The reason is forex ... The next is we see the end market weaker than we thought at the time,” Chief Executive Borje Ekholm told investors at a capital markets day in New York.

Once the world’s biggest maker of mobile network equipment, Ericsson has been hit by competition from China’s Huawei [HWT.UL] and Finland’s Nokia (NOKIA.HE) as well as falling spending by telecoms operators, with demand for next-generation 5G technology still years away.

The company has said it plans to cut costs by at least 10 billion crowns from the middle of next year, turn around its managed services business and carry out a strategic review of its loss-making media assets.

Ericsson said it was now aiming for an operating margin excluding restructuring costs of at least 10 percent by 2020, with Ekholm saying it preferred to be cautious rather than bank on its turnaround efforts being successful across the board.

But Redeye analyst Greger Johansson said a new gross margin target of 37-39 percent by 2020 was still above market expectations. It compares with 30 percent in the company’s third-quarter results.

Those results, published in October, marked Ericsson’s fourth consecutive loss making quarter.

Ericsson also said on Wednesday it was targeting sales of 190-200 billion crowns ($22.6-$23.8 billion) by 2020.

“Our job and commitment is to rebuild Ericsson to be successful long-term,” Ekholm said. “Near term we will prioritize profitability over growth.”

Ericsson’s shares, which are roughly flat so far this year and down by nearly 40 percent in the past two years, closed 3.3 percent lower at 52.75 crowns.

Reporting by Olof Swahnberg and Helena Soderpalm; Editing by Mark Potter and Elaine Hardcastle

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