Ericsson Announces Plans to Cut 5,000 Jobs

Ericsson has reported that its net income for the fourth quarter fell by 31% due to restructuring costs and lower profit margins - and announced plans for a further 5,000 job cuts. Net income in the three months to Dec. 31 was SEK3.89 billion (US$460.8 million), down from SEK5.64 billion (US$671 million) in the year-earlier period. Sales in the quarter increased by 23% year-over-year and by 11% for the full year.

In the quarter, gross margin was 35.2%, excluding restructuring charges. Full year gross margin amounted to 36.8%, compared to 39.3% a year ago. The sequential decline was mainly due to a high proportion of network rollout services. The network rollout sales increased sequentially by 61%.

"We have had a solid performance in 2008," said Carl-Henric Svanberg, President and CEO of Ericsson. "Sales grew by 11% with good demand for our entire portfolio and across the world. Changes in currency rates had very small effect on full year growth. Professional services have continued to show strong growth. Operating margins, excluding Sony Ericsson, have steadily improved, and our financial position is strong with net cash of SEK 35 b. Sony Ericsson is affected by the economic downturn and the declining demand in the consumer market and has taken necessary actions."

"The economic recession is spreading across the world. 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."

On the matter of redundancies, the company said that cost reductions will be achieved through reduction of the number of consultants and other temporary staff, consolidation of R&D sites and layoffs. These activities will result in a reduction of the number of employees by some 5,000, of which about 1,000 in Sweden, primarily in Stockholm.

Sales in Networks increased by 22% in the quarter, year-over-year, positively impacted by a weaker SEK. For the full year sales grew by 10%. 2008 was another record year for rollout of GSM. In addition, major 3G rollouts are ongoing in many markets while key markets, such as China and India, will soon start their 3G buildouts.

Sales of Professional Services increased by 34% in the quarter, year-over-year, and by 14% for the full year. Growth in constant currencies amounted to 26% and 13% respectively.

Regional Overview:

Western Europe sales increased by 5% in the quarter, year-over-year, and decreased by 2% for the full year. The year-over-year increase in the quarter was driven by strong performance mainly in Germany, Denmark and Italy. The strong sequential increase of 39% is above normal seasonality and driven by good demand for mobile broadband and professional services.

In Central and Eastern Europe, Middle East and Africa, sales increased by 24% in the quarter, year-over-year, and by 9% for the full year. A strong year-over-year quarterly performance in Nigeria, Saudi Arabia and South Africa is driven by continued 2G buildout, while a strong growth in Russia is driven by ongoing 3G rollouts.

Asia Pacific sales increased by 49% in the quarter, year-over-year, and by 16% for the full year. The Chinese market rebounded after the Olympic Games. 3G licenses were awarded in the beginning of January 2009 and rollouts will start soon. India, with large network rollouts, remains Ericsson's largest and fastest growing market. Japan and Indonesia showed strong development in the quarter and are now Ericsson's fifth and sixth largest markets. The market in Pakistan is still weak due to political uncertainties.

Latin American sales increased by 16% in the quarter, year-over-year, and by 25% for the full year. The year has been impacted by a combination of 2G enhancements and 3G buildouts, and 3G is now an established technology across the region. Mexico and Brazil showed strong development, both in the quarter and for the full year, and show no signs of slow-down despite the economic downturn.

North American sales increased by 13% in the quarter, year-over-year, and full year sales increased by 34%. The recorded slower growth in the fourth quarter is mainly an effect of a tough year-over-year comparison despite positive effects of the increasing USD in the fourth quarter. For the full year, the effects from changes in currency exchange rates were limited. Mobile broadband is now well established with good consumer take-up, which is driving continued rollouts as well as capacity enhancements.

 

Posted to the site on 21st January 2009