Ericsson to Make $630M in Cuts in Light of Flat Market Prospects

Ericsson announced more than $630 million in cost reductions in light of its disappointing performance in the second half of 2007 and expectations of a “flattish” mobile infrastructure market in 2008. The company’s fourth-quarter net income fell to 5.64 billion kronor ($879 million) from 9.7 billion kronor.

“We are looking at 4 billion [in Swedish kronor] in cost cuts to safeguard our competitive position,” said Carl-Henric Svanberg, president and CEO of Ericsson, in a conference call. “It is a lot of money, and it will affect people.”

The cuts will affect 1,000 people in Sweden and approximately 3,000 employees outside Sweden, he said, adding that the reductions will be made across the company. Ericsson also plans to be more cautious in regards to its investment in R&D, said Svanberg. The full effect of these cutbacks will be felt in 2009, he added.

In reporting Ericsson’s annual and fourth quarter 2007 results, Svanberg said Ericsson had a tough second half as the company and its customers struggled with a weakening U.S. dollar and general economic uncertainty; saw operator consolidation in such markets as Italy and the U.K.; and political turmoil in Bangladesh, Pakistan and Thailand. The company is also facing shrinking margins as low-cost competitors like Huawei grow stronger and wireless infrastructure suppliers are bidding aggressively to gain position in service providers’ next-generation networks, Svanberg indicated.

On the upside, Svanberg said the company saw 8 percent organic growth in 2007 and took more market share gains than it has in many years; had a strong operating income for the year overall, although it was lower than the previous year; and realized better cash flow than last year. And while the company’s wireless infrastructure business is still, the company’s professional services is up 19 percent; it saw growth in its multimedia business in the fourth quarter; and the 4G wireless technology known as LTE seems to be gaining momentum at various service providers, including Verizon, Vodafone, DoCoMo and others.

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