What's going on?

Swedish telecoms giant, Ericsson, warned investors that sales and profits for its latest quarter fell well short of expectations. Bad news spreads fast: investors responded by sending its stock down 20%.

What does this mean?

Ericsson sells the infrastructure that allows your smartphone network to operate. Its clients, mobile phone operators like AT&T, evidently aren�t building as much network infrastructure (e.g. 4G) as they used to. One major problem is that sales in emerging markets were much weaker than expected (although developed markets also saw sales slump). This is particularly disappointing because those markets were supposed to drive Ericsson�s growth: they are building out their relatively undeveloped mobile networks.

Why should I care?

The bigger picture: Ericsson is losing ground as the focus shifts away from mobile networks.

Broadly speaking, most of Ericsson�s customers have already installed 4G capability and 5G won�t be ready for a mass rollout for at least a few more years. Unlike rivals such as Nokia (which recently merged with fixed-line producer Alcatel-Lucent), Ericsson doesn�t have much of a fixed-line business (�fixed-line� is pretty much what it sounds like: a physical wire that delivers a lightning fast internet connection). Demand for this type of product is on the rise as the popularity of data-heavy services, like cloud computing and streaming, increases. Unfortunately for Ericsson, it doesn�t have much of a presence in this market (it only has a cooperation agreement with Cisco).


For the stock: Ericsson needs a new CEO.
Ericsson is taking a straightforward response to falling sales: reducing costs to offset falling revenue. It�s kind of like hunkering down in a storm. But the company will need a more detailed rescue plan to weather this storm effectively – and that probably won�t get formulated until it finds a new CEO to replace the one it ousted in July (the current interim CEO is just manning the ship).