The FINANCIAL — Swedish telecommunications giant Ericsson on January 25 said that it will cut another 1,500 jobs this year after reporting fourth-quarter net profit fell on higher restructuring costs and lower sales.
The Wall Street Journal reports that the company, which in January last year launched a cost-cutting program including 5,000 job cuts and estimated restructuring costs of around 6 billion-7 billion Swedish kronor ($830 million to $930 million).
Ericsson, the maker of wireless networking equipment, said sales in the quarter fell 13% to 58.3 billion kronor. Net sales for comparable units declined 16%, according to The Street. Ericsson said fourth-quarter net income attributable to stockholders of the parent company fell 92% to 314 million kronor.
"During the second half of 2009, networks' sales were impacted by reduced operator spending in a number of markets," said Hans Vestberg, Ericsson's president and CEO, in a press release, the same source reports.
The company, based in Stockholm, raised the target for its savings program to 15-16 billion kronor ($2.1-2.2 billion) in annual savings from 10 billion kronor before. It said the expansion of the savings program will increase total layoffs to 6,500 from the 5,000 previously planned, according to ABC News. The scheme, which was launched a year ago, is expected to be completed in the second quarter of 2010 at a cost of 13-14 billion kronor ($1.8-1.9 billion).
Vestberg said the downturn in investments coincided with an anticipated decline in sales related to the GSM cellular standard, as telecommunication operators shifted their focus from voice telephony to mobile broadband, the same source reports. Vestberg replaced Carl-Henric Svanberg as Ericsson's president and CEO on Jan. 1 as Svanberg took over as chairman of oil major BP Group PLC. Greger Johansson, an analyst at research firm Redeye, said the result was largely in line with expectations, although in the lower end of forecasts. "Professional services were weaker than expected and network sales somewhat worse than forecast," he said. However, he added the expansion of the savings program was positive news.
Along with rivals, Ericsson has in the past year suffered from slowing demand as the operators which buy its gear spent cautiously in the economic downturn. Still, service sales have remained stable, in part because customers have outsourced the management of their networks to better control costs, according to The Wall Street Journal. Ericsson last summer won a seven-year contract to maintain the networks of U.S.-based telecommunications group Sprint Nextel Corp. (S)
The same source reports that still, the Stockholm-based company has seen intense competition in its equipment business from vendors including Chinese rival Huawei Technologies Co., which in recent months has secured several network deals with European operators such as Norway's Telenor ASA (TEL.OS) due to low prices and improving quality.
With more than 80,000 employees worldwide, Ericsson is one of Sweden's biggest companies and has long been a key global supplier of fixed and mobile phone networks, The Street wrote. It is increasingly focusing on providing services, like managing the networks of operators.
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