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Shares of Telefonaktiebolaget LM Ericsson (NASDAQ: ERIC) soared on Friday morning, following the telecom infrastructure specialist's release of third-quarter results. As of 9:55 a.m. EDT, Ericsson stock had gained 9.7% on heavy trading volume.
Ericsson's third-quarter sales decreased 6% year over year, landing at $5.9 billion. The company reports its results in the Swedish krona, and the U.S. dollar's value measured against that currency has fallen by 8.5% over the last 52 weeks. Accounting for that currency exchange effect, Ericsson's dollar revenues increased by 2%.
On the bottom line, Ericsson reported an adjusted net loss of $0.07 per share and ADR, down from positive, currency-adjusted earnings of $0.04 per share in the year-ago quarter.
Analysts were expecting a net loss of $0.03 per share on top-line sales in the neighborhood of $5.7 billion. This was a mixed quarter, as Ericsson beat revenue estimates while falling short of Wall Street's earnings targets.
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Taking Ericsson's recent history of plunging earnings and sales into account, any sign of stabilization is good news:
Looking ahead, management expects revenue growth to flatten out in the fourth quarter. The bottom line will absorb rising R&D costs and a small restructuring charge, along with lower gross margins as Ericsson expands its market share in the large but cost-sensitive Chinese market. Ericsson hopes to play a major role in China's transition to 5G wireless technologies, extending the lessons learned there to other market opportunities. Northeast Asia, which includes China and Japan, accounted for just 12% of Ericsson's third-quarter revenues, behind 26% from North America and 31% from customers in Europe and Latin America.
The stock has now gained 20% over the last year, in line with the S&P 500 benchmark index. P/E ratios are up in the air given how close to breakeven Ericsson's earnings are running, but shares look affordable on a price-to-sales or price-to-book basis. There should be room for some solid share price growth as the Swedes exploit the upcoming 5G sea change.
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