Prior to Ericsson’s formal earnings report this coming October 21; the Swedish telecommunications giant has issued a warning that investors should expect a lower earnings report. The warning of a weaker third quarter led the stocks of the company to drop by 21%.
Ericsson has stated that the profit warning was caused by a series of company decisions. Some of these are the announcement of job cuts and a change in the management of the company following Hans Vestberg’s departure from Ericsson led them to ax their own expectations in their upcoming profit forecasts with a reported decline in the sales of the tech giant at 19%.
Following the weak profit outlook, the company is also currently trapped in an economic whirlpool as reports from countries such as Russia and the Middle East has reportedly eased their expenses regarding the mobile network. More and more countries are also reported to have been making the switch from 3G cell towers and upgrading to 4G ones.
Following the industry’s growing focus on building 4G towers instead of 3G ones, Ericsson also failed to produce their own networks with fixed telecommunications and have declined partnerships and acquisitions that were believed to have been saved the company from a bigger revenue loss.
Decline of European Shares
Following the profit warning which led Ericsson’s shares to slump by a far 21%, European indices also experienced declines with the Pan-European STOXX down by 0.5%.The STOXX 600 and DAX also fell at the same 0.5% with the STOXX 600 down by 7.4% this year.
Other European markets also were pulled by Ericsson’s slump like BASF from Frankfurt losing 0.06% despite beyond forecasted results for their third quarter earnings report. Sanofi also posted a drop of 1.15% at Wednesday’s close. Nokia shares also slumped by 5.1% the company’s biggest loss since June.
Wednesday’s early morning trading already showed a dive of 17% in the shares of the company eventually closing at a price of 5.55 or a 21% decline from an opening price of 5.75 compared to the previous session’s 7.01. The RSI Indicator is currently pointing sharply downwards way below the 30 level which indicates that the stock has been oversold. Investors who are looking to buy the stock should wait until the RSI indicator points upwards again before the peak of breaking out of the 30 level.
The decline in the stocks was also the tech company’s biggest lost in a span of ten years following a 14% drop in sales back in the same quarter of 2003. Although one of Ericsson’s major competitor, Nokia, posted a 5% loss, it’s still far-off by a chunk compared to Ericsson’s 21% drop.
The company also has yet to replace former CEO Hans Vestberg since his departure from the company three months ago. This is one of the factors that the company recently mentioned to why Ericsson experienced a loss of revenue. The company also has yet to announce a list of possible successors showing a lack of outlook in the future of the company.
Should the company announce a new CEO soon that will shed light on their plans in telecommunication networks, the stock might be able to recuperate its losses from the warning that it issued about its upcoming earnings report.