Ericsson Blames the Analysts for Its Ills
(Bloomberg Opinion) -- It was similar to the maligned film director who says, “My movie isn’t bad, the audience just isn’t smart enough to understand it.” Except this time it was the chief executive of a $30 billion telecoms equipment firm talking on Wednesday about his quarterly earnings.
Ericsson AB’s adjusted operating profit hit 3.9 billion kronor ($415 million) in the three months to June, well below the average analyst estimate of 4.4 billion kronor. To CEO Borje Ekholm, though, that had less to do with the company’s under-performance than it did with analysts getting carried away with themselves in hoping for the best. “I sometimes like to say that maybe the analysts have missed,” he told Bloomberg Television in an interview. It’s an unusual excuse.
Ekholm was referring particularly to the failure of the market to factor in the patchy recovery of his company’s digital services and managed divisions (which sell the software and operational tools that run on its telecoms networks). He was adamant that he provided sufficient warning about the units’ difficulties. “We have said that improvements will not be linear and they will vary from quarter to quarter,” he said.
It isn’t always easy to sympathize with equity analysts, who famously tend toward an overly positive bias on how they view companies. But in fairness it is sometimes hard to parse the somewhat gnomic comments of executives, and Ekholm’s example of “non-linear improvements” isn’t exactly a model of clarity. Operating income actually declined at the managed services division, which isn’t much of an improvement of any kind.
CEO guidance can seem like a secret language, where the intent is clear to the speaker but not immediately obvious to the listener. And, of course, being vague provides valuable wriggle room should a company fail to meet expectations.
In this instance, the vagueness backfired. The stock fell by about 6% on Wednesday morning as investors took fright at the fact that every division other than the networks unit disappointed. So maybe if Ekholm is looking for someone to blame, he should have a word with his investor relations department for not managing expectations better. Or look at the managers of the under-performing units themselves.
One issue is that Ericsson doesn’t provide full-year earnings outlooks – it only has a 2020 target. If it wants to avoid more bumps on the road in what has been a pretty impressive recovery story under Ekholm, it would do well to look at its own communications too.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Alex Webb is a Bloomberg Opinion columnist covering Europe's technology, media and communications industries. He previously covered Apple and other technology companies for Bloomberg News in San Francisco.
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