STOCKHOLM--Ericsson set out plans to streamline its operating structure, seeking to strengthen its customer focus and drive efficiencies while warning that higher component costs will be a headwind to profitability next year.
The Swedish telecommunications equipment maker said Thursday that a new Asia-Pacific market area will be established from Jan. 1, combining its North East Asia and South East Asia, Oceania and India markets. Bringing these markets together will allow more effective operations across the region while maintaining a strong focus at country and customer levels, it said.
The new APAC market area will be headed by Patrick Johansson, who currently leads the Europe, Middle East and Africa region. The company is starting a recruitment process for a new EMEA head.
"It will enable us to move faster, improve accountability and better support our customers in a changing market," Chief Executive Officer Per Narvinger said.
The changes were outlined as the company said its key networks business posted an organic sales increase of 9% in the third quarter, driven by project deliveries in Japan and India, as well as continuing network modernization and expansion in the Middle East. Networks sales in North America also increased slightly, while overall sales were supported by higher licensing revenues.
The company reported a third-quarter adjusted gross margin in the networks unit of 50.3%, just above its guided 48% to 50% range, and said the margin is expected to land within a 49% to 51% range in the fourth quarter.
Despite the small beat in networks profitability, Ericsson continued to warn of increasing cost pressures from rising semiconductor costs. The rapid build-out of artificial-intelligence infrastructure has led to a shortage of memory chips, sending prices higher. The company has been working to offset these higher component costs by burden-sharing with customers and suppliers as well as by substituting products to reduce costs.
"Looking ahead, the radio access network market is flat, geopolitical uncertainty remains elevated and component costs are a headwind to gross margin next year," Narvinger said. "We will stay close to our customers, continue to prioritize technology leadership and take disciplined actions to strengthen competitiveness."
The company reported third-quarter earnings before interest and taxes of 8.86 billion Swedish kronor ($883.9 million), ahead of the 7.12 billion kronor expected in a FactSet poll.
Sales rose 5.8% to 59.48 billion kronor, versus the 55.28 billion kronor FactSet estimate, while the group's gross margin slipped to 47.1% from 47.6%.
The results mark the first under the leadership of new CEO Per Narvinger, a company veteran who headed the networks business and took over from Borje Ekholm on Oct. 1.
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