Ericsson (ERIC) - Get Free Report shares advanced after the Swedish telecom equipment maker said efforts to boost efficiency and curb costs progressed at a faster pace than expected in the recent quarter and should result in lower restructuring charges in in 2017.
Shares in the Stockholm-based company advanced 2.6% to SEK53.30 at 9:50 GMT, although the stock has fallen 35% over the past 12 months.
Thursday's gains, however, come despite weak fourth quarter earnings, in which net profit plunged 123% year on year to SEK 1.6 billion ($181 million) on a 11% sales drop to SEK 65.2 billion. Gross margin dropped to 26.1% from 36.3%. The company also slashed its full-year dividend by 73% -- the first reduction since 1998 -- to SEK1 per share.
Borje Ekholm, who assumed the CEO position on Jan. 16, said he expects market conditions to remain tough in the coming year.
"The current industry trends and business mix of coverage and capacity sales in mobile broadband are expected to prevail in 2017," Ekholm said. "Emphasis will be on refining the strategy to focus investments into areas where we both can and must win."
The company attributed the sales decline mainly to licensing intellectual property rights revenue, as well as a weak market environment in Latin America resulting in weak mobile broad-band investments.
The networks business suffered a sales drop of 13% year on year, but a 39% expansion on a quarterly basis partly thanks to transition from 3G to 4G in Asia Pacific, as well as the depreciation of the Swedish Krona against the dollar. However, the business remained weak in North America and Europe.
Telecom equipment makers are suffering as their customers invest less in 4G services, and even less in 3G, as they wait for the introduction of 5G networks.
Meanwhile, sales dropped 4% in the global services business. They dropped 39% in the support solutions business partly due to lower IPR licensing revenues.
Gross margin was hurt due to the drop in IPR licensing revenues and higher restructuring charges, the company said.
Ericsson added that its efforts to curb costs and boost efficiency progressed at a faster pace than expected in the quarter, and that this should result in lower restructuring charges in 2017.