Ericsson saw its share price dive 24 percent on October 16 after the world's leading mobile networks maker said its third quarter earnings would be lower than expected, confirming a slowdown in the networks sector amid rising competition from Asia.
Ericsson saw more than more than 100 billion kronor (15 billion dollars, 11 billion euros) go up in smoke when its share value plunged by 24 percent to 20.10 kronor on the Stockholm stock exchange in closing trade, the biggest loss in a single day in the history of the exchange.
The slump also hit other telecom equipment makers such as Nokia Siemens and Alcatel-Lucent. Ericsson's profit warning was due to a slowdown in investments in mobile network expansions.
"The unexpected development in the quarter is mainly due to a shortfall in sales in mobile network upgrades and expansions which resulted in an unfavourable business mix that also negatively affected group margins," chief executive Carl Henric Svanberg said.
"All other businesses performed as expected," he said in a statement. The world's leading telecom equipment makers are facing increasingly stiff competition, notably from Asian companies such as China's Huawei, which is putting pressure on margins.
"The industry is facing price pressure for infrastructure orders. At the same time, the expansion or upgrade market is quite weak. Overall, the network market is highly competitive," said Jari Honko, analyst at eQ Bank.
Ericsson said it now expected sales of 43.5 billion kronor (6.76 billion dollars, 4.76 billion euros), operating income of 5.6 billion kronor (871 million dollars, 613 million euros) and negative cash flow of 1.6 billion kronor (249 million dollars, 175 million euros) in the quarter. Market expectations were for sales of 45.4 billion and operating income of 9.1 billion, according to a survey by SME Direkt. In the third quarter last year, Ericsson posted sales of 41.3 billion kronor and operating income of 8.8 billion kronor.