Roland Magnusson/iStock Editorial via Getty Images Ericsson (NASDAQ:ERIC)
has tumbled 8% in Nasdaq trading Thursday, giving up hard-won gains from the past month, after its first-quarter earnings missed profit expectations badly despite better-than-expected revenues. The company also warns that it's likely to face further fines in the United States over the allegations that it made payments to terror group ISIS in Iraq. Adjusted operating profit landed at 4.8 billion Swedish kronor - about $507 million - well below consensus for 6.44 billion kronor. Sales, though, rose to 55.1 billion kronor vs. expectations for 53.64 billion. Citi is Neutral on the stock and acknowledges a mixed quarter, where the better sales were offset by weaker margins. (Adjusted operating margin came in at 8.7%, vs. expectations for 11.85%). The shares in the near term will be "limited by conduct challenges and higher costs," analyst Andrew Gardiner says. Barclays is more bullish on the stock, but acknowledges the heavy drag on margins from a number of factors, including a lower software mix, investments in the struggling supply chain, ramping R&D investment and increasing digital services losses. Contract renewals seem to be going slower "than we would have hoped," analyst Keagan Bryce-Borthwick writes. And most investors are likely to stay Neutral until there's more clarity on the Iraq scandal and the planned acquisition of Vonage Holdings (VG -0.2%). Ericsson CEO Börje Ekholm is still expecting the Vonage acquisition to close in the first half of this year, assuming U.S. regulatory approvals.