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More layoffs at Ericsson as profits plunge

AFP/The Local · 25 Jan 2010, 11:05

Published: 25 Jan 2010 08:29 GMT+01:00
Updated: 25 Jan 2010 11:05 GMT+01:00

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In a sign of the impact of the economic crisis on the telecom industry, Ericsson's net profit plunged by 92 percent to 314 million kronor ($43.4 million) between October and December.

That was in contrast to a net profit of 3.89 billion kronor in the same period of 2008, the company said in a statement.

The profit margin was much lower than expected as analysts polled by Dow Jones Newswires had forecast a net profit of 3.23 billion kronor.

However, operating profit, excluding joint ventures and restructuring costs, came to 7.5 billion kronor, nearly in line with the 7.6 billion kronor result forecast by a poll of Reuters analysts.

Ericsson also announced an extra 1,500 jobs would be cut under a restructuring plan which bit deeply into fourth-quarter net profit at the firm, the world leader in phone network equipment.

Total announced job cuts are now about 6,500, generating huge restructuring charges with the intention of bringing equally huge cost savings.

Ericsson said that sales had dropped owing to cuts in investment by mobile phone operators in a number of markets, including in developing nations in central Europe, the Middle East and Africa.

Restructuring costs reached 4.3 billion kronors in the fourth quarter, compared to 2.3 billion kronor in the same period in 2008, and for the full year the charges totalled 11.3 billion kronor, the company said.

The company estimates that its restructuring programme will cost up to 14 billion kronor and bring annual savings of between 15 billion and 16 billion kronor.

"When the initial (restructuring) programme was announced in January 2009, it was anticipated that the actions would result in a reduction of the number of employees by some 5,000, of which about 1,000 in Sweden, Ericsson said.

"The 5,000 has been exceeded and is estimated to reach approximately 6,500," the company said in the statement.

Sales fell by 13 percent to 58.3 billion kronor in the fourth quarter in the wake of the global economic crisis and growing competition from telecom equipment industry with the rise of China's Huawei.

Ericsson said the anticipated decline in sales of older GSM networks had accelerated owing to the economic crisis, but was not yet offset by the growth in mobile broadband and investments in next-generation IP networks.

"During the second half of 2009, Networks' sales were impacted by reduced operator spending in a number of markets," chief executive Hans Vestberg said in a statement.

Story continues below…

He added that operators in a number of developing markets, especially Central Europe, Middle East and Africa, became increasingly cautious with investments in 2009.

"Meanwhile, other markets including China, India and the US continued to show good development with major network buildouts," Vestberg said.

Ericsson shares opened 2.6 percent lower at 70.05 kronor at the Stockholm stock exchange after the company announced its results.

AFP/The Local (news@thelocal.se)

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Your comments about this article

08:59 January 25, 2010 by franny66
Good news and hopefully more Swedish companies will fail, they will be soon poorer than Poland and I predict Poland will be a wealthier country in 10 years..
09:24 January 25, 2010 by krigeren
Another clear sign Sweden is losing its competitive edge. The cost of employing labor and doing business here is too high. The social democrats were parasites on the private sector for 80 years and this is the result. Sweden must put business and jobs first only by doing so will it be able to support the quality of life here that people have come to expect.
10:58 January 25, 2010 by homestead
@franny66 - "Good news and hopefully more Swedish companies will fail"

Your attitude is pathetic.
11:23 January 25, 2010 by SaltWater
I think it's time to the Left get the power! It's my opinion so all of you right wing people respect it! Sony ericsson has been very bad in public warranty and product quality, an example is Sony Ericsson S500i that had bad plastic with its keyboard, several camera failures and mic problems and Sony Ericsson never took responsibility, this makes bad publicity and make costumers move away from the brand! SE had a great 3g prototypes but never produced them, they are away of the public needs, if it goes this way, they will never recover, no matter the number of jobs cut!
12:46 January 25, 2010 by Luckystrike

This article is referring to Ericsson AB not Sony Ericsson! Although I agree with what you say about Sony E.

Also not sure why politics and the last 80 years has go anything to do with this article. The Telecom area and the IT sector in general is now and has been for the past 6 months, experiencing a "Lag" affect from the financial crisis, toppled with the transition from 3G to 4G networks. 3G sales are declining because of lack of investment mainly because, why would you continue to invest in 3G when you could wait a while and invest in 4G instead, and there is still a lot of uncertainty about preferred suppliers of 4G networks as it is a whole new Era.

Ericsson only has a small amount of business with vendors in Sweden, these vendors are the only ones affected by Sweden's "business laws" If a vendor in America wants to buy Ericsson equipment, they are regulated by America's "Business laws"...Basically, Sweden as per say has sweet F all to do with Ericssons competitive edge and visa versa....
13:37 January 25, 2010 by Malmoman

What do you mean when you say "left get into power". What the heck does this have to do with Ericsson and their telephones? Are you suggesting left leaning governments breed innovation? Or is it that a left leaning government would extend a better warranty and improve phone quality.
15:09 January 25, 2010 by krigeren

Back in 1994 when Telia was still state owned there was an opportunity to lay a nationwide fiber optic network (fat pipes).

Just as the government built roads for industry to get their goods to market, because government is good at doing things that have cost structures not reasonable for business, so should to have government built this infrastructure.

If such infrastructure was built it could have also laid the foundation for 4G early on and allowed companies such as Ericsson to make a leap ahead.

What about innovation at Ericsson? What about the policy of first in last out that causes dead wood to built up in organization? What about the high levels of taxation on labor? What about the Swedish engineers who go and work in another country because their take home salary (including medical care) is often twice as much?

I think those points factor into the competitiveness of Ericsson over the long term but I also see where your points are highly valid within the short term and shift in technology choices.
23:37 January 25, 2010 by frankly.speaking
Laying off is not a permanent solution, basically these decision maker are stuck in their minds working since many years.

Most Executives acts some time like dumb people they are quite directional most they have less diversity. Mostly have less potential to take risks and next steps. Today if they are sincere with employees why they don't ask to investigate what we should need in 2020 and start to move those employees to that area.

Why Ericsson blame Huawei and ZTE. Why they don't consider their own fault. Huawei found where we need strength and they put more people their to investigate and to take lead. But here Ericsson mostly acting like an old man that cant do so much just blaming other. Instead of saying its strategic success of Huawei Ericsson call Huawei cheap competitor. Let me say Executives Shame on you you do mistakes and other employees bear that......
01:06 January 26, 2010 by aaww

i can only partly agree with you.

excecutives are not dumb people, in fact many of them are as smart as you are or even smarter. you think they are dumb because you do not understand how many problems they are facing everyday. excutives make decision based on numbers, this is not good, but this is taught in most american MBA schools, it has become a way of working in the multinational companies, and it's turns out to be a efficient way (remember efficient way does not means good way). CEO of a company normally means that his work should not be focused on daily operations, otherwise they would not recruit COO any more. the main job of the CEO is to plan the companies future, like you said, what should the company do in 2020 or even 2050.

i do think Huawei is cheap competitor to Ericsson, as they only behave like a copier and follower in the last 10 years. my statement above does not mean that i do not rekon Huawei's effort made in the past, you know, sometimes it's just easier to be a follower than a industry leader.

now i noticed that Huawei claim they are the world's number one wireless player in terms of number of TRX shipped. this is good, which means that Ericsson has a strong competitor in the market. at the same time, i would also like to see how they can claim they are leading the wireless industry.

to be a industry leader, you will not only need to ship the most number of products, but also invest in R&D in the future, telling the world what's after HSPA, HSPA+, LTE and sucessor of LTE.......bla bla. do you think Huawei has the know how to lead the world this way? if you ask people, i am sure that higher percentage of people will have more confidence in Ericsson than Huawei in this.
02:10 January 26, 2010 by randyt
Why do these folks always just layoff, layoff, layoff - why not offer cut backs in hours/pay? Four day work weeks - vs. five day work weeks. A job for an individual is better than unemployment and being bored at home - would also save tax payer money.

There is a program running in some of the states here in the US - where the comapany cuts hours say in half, and the state kicks in a little unemployment. A win win for both the company, worker and the state.

Darn CEOs get out of your boxes. At some point business will improve and you will have lost all your talent.
07:38 January 26, 2010 by mkvgtired

"Good news and hopefully more Swedish companies will fail, they will be soon poorer than Poland and I predict Poland will be a wealthier country in 10 years."

This is some of the most backwards logic I have encountered. That is like saying all of the company failures in the West are increasing the standard of living in Yemen because the standard of living in the West has gone down. You should want Poland to succeed through innovation and hard work, not merely showing a larger GDP per capita than another country. Company failures, especially in a common economic zone, will not help Poland.
12:23 January 26, 2010 by Nemesis
@ franny66

Since you hate Sweden so much, leave Sweden and don't come back.
23:12 January 26, 2010 by frankly.speaking

I am happy you understood what I mean. Regarding vision ofcourse technical people look at current faults but Manager look some thing more and even CEO's have broader vision but what I said usually their decision cost a lot when they do mistake and others have to bear that :-)

Frankly speaking Huawei is not only a cheap competitor but aggressive competitor regarding Huawei sale they are getting market where Ericsson has soled that business and Ericsson is no more in that market. They are best in how and when and what some one need in this world at certain corner of world. I am totally agree with you Huawei is not at that level today but Huawei don't have history as well and they are shaking who is giant in Telecom world. again I will say layoff is not solution. Ericsson should look inside its much weaker on departmental level like HR, Think tank, Marketing and sales procedures. ofcourse we are not playing gambling but if we are much much better in technology but we should realize Ericsson is not good in strategic level comparatively.

Again what you are talking is Ericsson is leader in telecom but not in Marketing and sales
11:16 January 28, 2010 by ssimsek53
it is pitty that some people feel happy to hear bad news or want the news to be bad, when it comes to Swedish economy.
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