More layoffs at Ericsson as profits plunge

More layoffs at Ericsson as profits plunge
Ericsson CEO Hans Vestberg
Swedish telecom giant Ericsson on Monday reported a 92 percent drop in net profits for the fourth quarter, adding that it would now cut 6,500 jobs under its restructuring plan.

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.

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.

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