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Ericsson Shares Drop on Profit Plunge

Shares in Ericsson were down more than 17% in pre-market trading Wednesday after the video and telecom company announced preliminary Q3 results that are “significantly lower” than expectations.

Ericsson said Q3 sales dropped by 14% and gross margins plummeted to 28%, noting that it’s seeing weaker demand for mobile broadband.

Ericsson said negative industry trends from the first half of the year have accelerated, with sales declines mainly driven by markets with weak macro-economic environment such as Brazil, Russia and the Middle East.  Capacity sales in Europe were also lower following completion of mobile broadband projects in 2015, the company said.

Word of the disappointing Q3 results follow recent plans to cut 3,000 jobs in Sweden amid a broader restructuring plan that is targeting savings of SEK 9 billion (about $1 billion) during 2017.

"Our result is significantly lower than we expected, with a particularly weak end of the quarter, and deviates from what we previously have communicated regarding market development,” Ericsson president and CEO  Jan Frykhammar  said, in a statement. “The negative industry trends have further accelerated affecting primarily Segment Networks. Continued progress in our cost reduction programs did not offset the lower sales and gross margin. More in-depth analysis remains to be done but current trends are expected to continue short-term. We will continue to drive the ongoing cost program and implement further reductions in cost of sales to meet the lower sales volumes."