Ericsson’s provisions raise concern over health of business

An effort by Ericsson Telephone Co.'s (NASDAQ: ERIC) new chief executive to plan his strategy for the Swedish telecoms equipment maker failed on Tuesday when it exploited problems related to some of its main contracts. Chief Executive Borje Ekholm, who took charge only in January, declared up to $ 1.7 billion in necessities, writedowns and restructuring costs to be taken in the first three months of the year.Ekholm has to oppose with dwindling markets and mounting competition from China's Huawei and Finland's Nokia His strategy on Tuesday raised concerns by including 7-9 billion crowns ($ 797 million- $ 1 billion) in first quarter provisions "triggered by recent negative developments regarding certain large customer projects". Ekholm, a veteran Ericsson board member, said these contracts were few and no further details provided.

"It is beyond bad form. You do not burn nearly a billion euros and do not tell investors what it is," said a financial analyst who asked not to be identified.

Ericsson underwent an operating loss in the final three months of 2016 and reduced its annual dividend by 73 percent and the lack of clarity on its shares 1.6 percent lower on Tuesday. The stock has lost more than a quarter of its value over the past year. "What has happened in the first quarter that makes them take provisions of 7 to 9 billion?" "It's a lot of money," said Inge Heydorn, fund manager at Sentat Asset Management, who has a short position in Ericsson. Several telecom analysts mentioned the provisions could stem from emerging markets such as Latin America, Russia and China, or U.S. mobile operator Sprint, which renegotiated a contract services contract with Ericsson in July.

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