Ericsson Quarterly Loss Puts Its Board in a Crisis Mode
By ALMAR LATOUR and EDWARD HARRIS
Staff Reporters of THE WALL STREET JOURNAL
The board of Telefon AB L.M. Ericsson has formed a crisis committee to monitor the restructuring actions of the ailing telecom-equipment maker's management, people familiar with the situation said.
The three-person committee -- consisting of industrialists on the board -- was formed in the wake of a first-quarter loss reported by Ericsson on Friday and deals another blow to Ericsson Chairman Lars Ramqvist and Chief Executive Kurt Hellstroem. It is understood that several board members have threatened to make management changes if the Swedish company's results don't improve over the next few months.
At least one committee member will meet with Ericsson executives every two weeks, or more often if deemed necessary, the people familiar with the matter said.
Meanwhile, Ericsson's management is expected to take drastic additional restructuring measures to stop losses in the handset division. Those steps will include the offer this year of assets valued at more than $1 billion -- on top of divestments and outsourcing already announced this year.
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Nokia to Buy Back 50 Million Shares in Move to Finance Future Purchases (March 23)
As early as Tuesday, the company is expected to finalize an agreement to form a 50-50 joint venture between part of its consumer-products division and Sony Corp.'s handset division. The joint venture, to be named Sony Ericsson, will be based in Ericsson's nearly empty premises in the heart of London. The joint venture won't include Ericsson's semiconductor production facilities, which had been part of the consumer-products division. The deal is expected to be announced officially Tuesday, after Sony's board meets.
Sony Ericsson, to be managed by 60 people from both companies, will design, develop, produce and market all types of handsets, including current-technology GSM; GPRS technology, which is currently being rolled out by operators in Europe; and 3G multimedia handsets, which will be introduced in Asia this year and in Europe early next year.
While posting its loss on Friday, Ericsson also reported a further slide in its share of global handset sales, forcing it to slash jobs and apparently pushing it out of the top three global handset makers for the quarter.
The company posted a pretax loss of 4.9 billion kronor ($485.3 million), excluding capital gains of 5.7 billion kronor, compared with pretax profit of 6.1 billion kronor a year earlier. The company said it will cut as many as 12,000 additional jobs to reduce costs at its handset unit and other parts of the company. That brings total layoffs announced so far this year to more than 20,000, or 18% of its work force.
Ericsson shares fell 14.5% in Stockholm trading Friday to 59 kronor.
Ericsson's global handset sales for the quarter dropped 41% to 6.2 million units from 10.5 million a year earlier. Meanwhile, preliminary handset-sales figures of Siemens AG, which will report its results this week, are closer to seven million for the quarter, according to people familiar with the matter. That would put the German electronics maker ahead of Ericsson on handset sales for the quarter, behind No. 2 Motorola Corp. of the U.S. and Nokia Corp. of Finland, the world's No. 1 handset maker.
Separately, Nokia reported that its first-quarter earnings climbed 15% to 1.05 billion euros ($941.2 million), exceeding analysts' expectations. Sales climbed 22% to eight billion euros. Sales at Nokia's mobile-phone division rose 20% to 5.83 billion euros. Sales at the networks division increased 35% to 2.02 billion euros.
Nokia shares rose 3.2% to 34.65 euros in Helsinki Friday.
Ericsson said its earnings for the second quarter will be about the same as the first-quarter results. It said handset sales will fall further in the quarter, adding that there were "no signs of a short-term turnaround."
"We are going to see a continued slowdown in Europe," said Ericsson's Mr. Hellstroem. "We have already seen slower investment from telecom companies, and falling orders from the U.S. have been very abrupt." |
