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UPDATE 1-Ericsson says needs more time for margin turnaround, shares dip
November 8, 2017 / 3:35 PM / in 9 days

UPDATE 1-Ericsson says needs more time for margin turnaround, shares dip

(Adds detail, background, shares)

STOCKHOLM, Nov 8 (Reuters) - Mobile network gear maker Ericsson said on Wednesday it did not expect to reach its operating margin target of 12 percent until after 2020, blaming lower demand for its equipment and currency swings for pushing back the timing by two years.

The announcement sent its shares more than 3 percent lower, after it scrapped guidance it had been sticking to less than three weeks ago, adding to concerns that the Swedish company’s challenges are worsening.

The firm, which in October announced its fourth consecutive money-losing quarter, said it remained committed to the goal of a 12 percent margin but said it would take longer achieve.

Once the world’s top maker of mobile network equipment, Ericsson faces a shrinking market for older 2G, 3G and 4G network gear and investors have long doubted it would reach its 12 percent margin goal by its previous timeline of after 2018.

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

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

Average forecasts by analysts, drawn up before third quarter earnings were announced last month, had predicted adjusted operating margin resting at only 7.9 percent for 2019.

In a statement before an investor update in New York, the company also said it was targeting a gross margin of 37 to 39 percent and sales of between 190 billion and 200 billion crowns ($22.6 billion-23.8 billion) by 2020.

The company has previously said it planned to reduce 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.

Shares fell 3.1 percent to 52.85 crowns at 1528 GMT.

$1 = 8.3962 Swedish crowns Reporting by Olof Swahnberg and Helena Soderpalm; Editing by Niklas Pollard and Edmund Blair

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