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Ericsson: 1,500 Layoffs Planned as Profits Nosedive 92%

Wireless gear maker Ericsson (ERIC) will cut 1,500 jobs this year as it continues to struggle from the double-whammy of carrier cutbacks and intense competition from low-cost Chinese rivals.

The announcement came on Monday, when Ericsson released its fourth-quarter profits – the Sweden-based company’s profit nosedived 92 percent.

Net income dropped from 3.89 billion kronor in 2008’s fourth quarter to 314 million kronor, or $43.3 million. Wall Street was expected profit of 2.5 billion kronor, according to estimates gathered by Bloomberg. Sales fell, too, by 13 percent to 58.3 billion kronor.

As a result, Ericsson, the world’s largest wireless networks manufacturer, is taking more steps to shore up operations. In 2009, the company laid off 5,000 workers. Throughout 2010, it will shed another 1,500, mostly in Sweden. Ericsson employed 82,500 people at the end of December.

“Continued cost-saving activities and resource realignment are necessary in order to build a leaner, more efficient organization capable of meeting the demands of the changing competitive landscape,” Ericsson CEO Bert Nordberg said in a prepared statement.

One way Ericsson plans to do that is by concentrating on its joint venture with electronics giant Sony.

“We will continue to focus on returning the company to profitability by establishing Sony Ericsson as the communication entertainment brand based on an exciting portfolio of mid- and high-end product,” Nordberg said, citing the Android operating system-based XPERIA mobile device as one example.

“2010 will still be challenging as the full benefit of cost improvements will not impact results until the second half of the year, however we are confident that our business is on the right track,” Nordberg said.

The new job eliminations, combined with other expense reductions, should save Ericsson between 15 billion and 16 billion kronor per year, the company said.

Ericsson is struggling as carrier customers have pared back their network spending amid the global economic collapse. During the fourth quarter, many of its clients didn’t invest as much as usual in their older GSM systems, and spending on 4G networks didn’t generate enough sales to even out the losses. At the same time, China-based competitors Huawei Technologies and ZTE have swooped in with far less expensive equipment, putting the pressure not just on Ericsson, but on Nokia Siemens Networks, Alcatel-Lucent and others.

However, the coming quarter could be looking up for Ericsson on the sales front. The company just edged Huawei out of a lucrative contract with Norway’s TeliaSonera, even though Huawei had worked with the provider late last year.

Wall Street on Monday didn’t react as strongly to Ericsson’s losses as might have been expected. The company’s shares were trading down a mere .41 percent at about 2 p.m. Eastern at $9.79.


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