Geoffrey Smith 

Investing.com — Ericsson (ST) a Swedish telecoms company, said it lost earnings in its first quarter. The company also warns of more losses from Russia withdrawals and new sanctions violations by the United States. 

Börje Ekholm, who was censured along with the rest of the company’s management last week for his handling of an investigation into possible payments made to Islamic State affiliates in Iraq, said in a statement that it may be fined by the U.S. Department of Justice for breaking the terms of a deferred prosecution agreement.  

The resolution of these issues could lead to a variety of DOJ actions, including additional monetary payments. However, it is not possible at the moment to estimate their magnitude. Ekholm stated. 

Ekholm admitted to the news that net profit dropped 8% in the first quarter, reaching 2.9 billion Swedish Kronor ($308m), which was well below what Ekholm expected at 4.8 billion. This was despite a 11% increase in sales to 55.1 million kronor. As a result, there was a 900m kronor cost that the company announced this week. This charge came as the company suspended business due to Ukraine’s invasion. About one-third will impact cash flow while the rest are non-cash effects.

Russia, a country that had provided significant growth opportunities for Swedish companies, was invaded in 1991. The company faced considerable costs to move manufacturing production to Russia under the new law.

The quarterly update of the company had its good points. The company’s gross margin was stable at 42.3%. It also reported high demand for the Cradlepoint product for businesses, which it attributes to 5G service rollout in the U.S. Margin before interest, taxes, and amortization (EBITA), however, remained at 11%. This is well below its medium-term goal of 15%-18%. Ekholm indicated that Ekholm expects the company to take “2-3 years” in order to meet its goal.

Ericsson shares had suffered a 34% loss in value due to February’s disclosures about the Iraq issue. However, they have since recovered one third of their losses.