Ericsson makes further job cuts in wake of profit slump

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Ericsson makes further job cuts in wake of profit slump

By CAROLINE GABRIEL

Published: 26 January, 2010

READ MORE: Financial | Sweden | Ericsson

In the wake of yesterday's disappointing results, Ericsson has announced further job cuts in a bid to boost profitability, but defended its strong position in all its key markets. CEO Hans Vestberg said the Swedish giant maintained market share in all segments and that demand remained robust, but further efficiencies were needed at the main company and its key joint ventures, Sony Ericsson and chipmaker ST-Ericsson.

Restructuring costs have already hit Ericsson's bottom line. These costs rose sharply in the fourth quarter to SEK4.3bn from SEK2.3bn a year earlier, contributing to the 92% slide in net profit. Operating profit excluding restructuring charges and joint ventures fell to SEK7.5bn from SEK9bn. A year ago, Ericsson launched a costcutting plan with estimated costs of around SEK6bn to SEK7bn ($830m to $930m). This figure increased to about SEK13bn when it was expanded during the year, and it will now finish by the second quarter this year, saving SEK15bn to SEK16bn per year. Ericsson will end this process with 6,500 fewer jobs, making its total about 83,000. A further 1,500 will now follow.

Vestberg said in his statement that the decline in GSM sales has not yet been offset by sufficient growth in new mobile broadband and all-IP technologies, and warned not to be over optimistic about the short term contribution from LTE.

In an interview with Connected Planet, CFO Jan Frykhammar echoed that caution, saying that LTE deals are important for gaining a market beach head, but they are still too few and too early-stage to make a big impact on Ericsson's financial performance. That impact will not be felt for at least a year and probably longer. "There are lots of initial contracts and deployments, but writ number-wise it is very small," Frykhammar said

Ericsson remains well ahead of Huawei, which recently announced unaudited revenues of $21.5bn for full year 2009. Ericsson's full year revenues were down 1% year-on-year to SEK206.5bn ($28.6bn).