Ericsson: Economic Bellwether

Ouch. Ericsson is sharpening the axe again for layoffs. But it’s not because things are going badly. In fact, I would say it’s a good sign for the industry.

The tall, handsome and very Nordic Ericsson CEO Carl-Henric Svanberg said in a press meeting earlier today that the problem isn’t a ratcheting back of carrier contracts; on the contrary, from where Ericsson’s sitting, carriers are relatively healthy, financially speaking, with network traffic growth on the rise. In fact, things are just fine so far when it comes to selling infrastructure, he noted.

That seems to be true. Just taking a look at the wireless side, Ericsson is reaping all kinds of success in 3G with HSPA+ rollouts worldwide, it works closely with AT&T Inc. to support that carrier’s ongoing wireless efforts and LTE is coming next year — an opportunity in which Ericsson expects to play in a very significant way having been a primary proponent of the standard since the beginning. In fact, it just signed an LTE contract with hometown carrier TeliaSonera.

So what gives?

“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,” Svanberg said. “We will prepare for tougher times to defend our margins.”

Ah-ha. This is otherwise known as hedging one’s bets. Or perhaps, pre-emptive responsibility. Or, a long-term view? Any way you characterize it, it would seem the world’s No.1 telecom infrastructure provider is being, well, prudent. Not that the workers left out in the cold likely see it that way.

In contrast, Nortel, ALU and Motorola are all suffering — spectacularly — because of short-term thinking. Nortel didn’t know where to turn its attention, focusing in on what already was working for them rather than future opportunities. And suddenly, bankruptcy has left them in a state of confusion as to the way forward. Meanwhile, ALU has had ongoing post-merger integration issues, and got smacked for a failure to shift quickly enough with the times — CDMA has proven lucrative, sure, but again, where are the future opportunities? Now it’s wisely moving to re-focus on LTE and the cloud/Web services trend. As for Moto, well, it’s really been mostly impacted by its handset business, which has lacked future vision when it comes to mobility form factors. And it’s now paying the price.

Ericsson might be preparing for carrier spending to slow, eventually, but more importantly, it’s preparing now to be nimble for what opportunities actually are there when that slowdown comes. I think we’ll see more telecom companies — service providers and vendors alike — taking steps either through headcount reduction or significant re-organizations, to meet the long-term challenges, rather than just waiting around for the short-term crisis to hit. And no one likes layoffs, but I would venture to say that the pain we’re going to see now will stave off much bigger issues down the line. That’s a realization that bodes well. So I would look at this as a first sign of a bolstering economic health, even.

While I am still in a post-Obama Inaugural haze of bemused and completely unfettered optimism, I can’t help but remember one particular theme of the awesome O’s speech yesterday: We are all going to have to take responsibility and feel some pain for things to turn around. That will be true economically for those abroad as well.

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