Ericsson to slash 5,000 jobs after 31% profit drop

by Caroline Gabriel, ReThink Wireless

Of all the wireless infrastructure vendors, market leader Ericsson has seemed the most immune to the downturn so far, but it has proved itself vulnerable despite its scale, reporting a 31% year on year dive in net income in its fourth quarter, sparking plans for a further 5,000 job cuts.

The Swedish giant blamed its profit decline on restructuring costs and lower margins, with net income down to SEK3.89bn ($460.8m), from SEK5.64bn ($671m). Sales were up 23%, while gross margin was 35.2%, excluding restructuring charges (and 36.8% for the full year, compared to 39.3% in 2007). Outside of the Sony Ericsson venture, operating margins were improved, and CEO Carl-Henric Svanberg pointed to other strengths – high growth in professional services and a net cash position of SEK35bn.

Not known for over-enthusiasm, Svanberg nevertheless remained confident in the face of recession, telling the analyst results call: “The effects on the global mobile network market should not be that significant as most operators have healthy financial positions, there is a strong traffic growth and the networks are fairly loaded. It remains, however, difficult to more precisely predict to what extent consumer telecom spending will be affected and how operators will act. To date, our infrastructure business is hardly impacted at all, but it would be unreasonable to think that this would be the case also throughout 2009.”

Therefore, Ericsson will continue to cut costs, by cutting 5,000 jobs this year, 1,000 in Sweden; by cutting back on use of consultants; and by consolidating R&D centers. In sales terms, Networks were up 22% year-on-year in Q4, and 10% in the year, with a record year for GSM roll-outs and growing momentum behind 3G. Professional Services saw sales up 34% in the quarter and 14% for the year. Sales figures were positively impacted by currency changes. But there was a decline of 2% in western European sales for the full year, though this picked up in Q4, which was up 5% on the year before and 39% on the third quarter, mainly because of contracts in Germany, Italy and Denmark. For the year, central and eastern Europe and MEA saw a 24% sales hike, and Asia-Pacific a 16% rise, with a strong Q4 increase of 49% largely driven by China. Though smaller markets for Ericsson, the Americas also saw year-on-year growth.

And over at Nokia Siemens, the biggest challenger to Ericsson said it was seeing increasing demand for its services business even in the downturn, and is seeing carriers looking to outsourcing and managed services as a way to ride out the storm.

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