Ericsson may cut R&D jobs
By Reuters
January 15, 2002, 9:55 a.m. PT
STOCKHOLM--Swedish telecom equipment maker Ericsson is set to cut up to 1,000 jobs in research and development globally in the next few months to reduce costs, a senior Ericsson source said Tuesday.
"Worldwide, I estimate it will be between 100 and 1,000 jobs...in spring, mainly in the development part of the unit," the source told Reuters. Development is bigger than research, and research "is more core business" than development.
"It's likely to be a few hundred in the mobile unit and a few hundred in the fixed-line R&D unit."
The source said the job cuts would be on top of the already-announced staff reductions of one-fifth of the work force, launched last year under an efficiency program to return the world's biggest producer of mobile networks and third-largest supplier of handsets to profit.
In November, Ericsson's U.S. spokesman Gary Pinkham told fund mangers in New York the company may need to cut more jobs through more discreet action to reach the company's goal of a 5 percent operating margin in 2002.
The source said one reason Ericsson had not cut R&D jobs earlier was because it needed all the unit's resources to work on a large order from U.S. mobile phone operator Cingular Wireless worth over $2 billion.
Big order completed
Although Cingular, the second biggest U.S. mobile operator, ordered existing GSM (Global System for Mobile Communications) and EDGE technology, it also bought slightly modified, more compact base stations that offer greater capacity. This required work from the R&D unit, the source said.
"Now that the R&D work for Cingular is finished, costs need to be brought down," he said.
The source also said room for job cuts was created by synergies from restructuring Ericsson's divisions, started in the fourth quarter.
As a result of these, many R&D projects previously dispersed around the globe would now be centralized.
"There are two main reasons why Ericsson has postponed sacking people in R&D," he said. "First, Ericsson did not want to disrupt some important projects, like the Cingular order, and secondly development of GSM and UMTS (Universal Mobile Telecommunications System), which were previously run separately, will now be merged into a single unit."
Ericsson spokeswoman Pia Gideon declined to comment on the possible job cuts because the company is in a silent period ahead of its fourth-quarter results due Jan. 25.
"But the logic of tying the end of the Cingular order to cutting jobs in R&D is poor, because the company is likely to win...similar orders," she said.
Apart from jobs, the unit, which spent $4 billion (41.4 billion Swedish crowns), or 15 percent of sales in 2000, and 33.6 billion crowns, or 19 percent of sales in the first nine months of 2001, would seek savings in other areas such as travel or materials management.
Ericsson R&D costs at the end of September 2001 were 18 percent higher than a year earlier, mainly as a result of investment in third-generation (3G) mobile telephony, which offers multimedia on handsets.
Ericsson's main competitor, Nokia of Finland, the world's biggest producer of mobile phones, spent 8.5 percent of its sales in 2000 on R&D.
But the source said the two figures could not be compared.
"It's like comparing apples and pears. R&D on wireless networks is much more expensive than on mobile phones."
Ericsson Chief Executive Kurt Hellstrom said late last year no major job reduction programs were on the agenda but the company would constantly review all possibilities to cut costs.
Michael Treschow, the chief executive of Electrolux who has a reputation for cutting costs, is due to take over as chairman of Ericsson in March, subject to shareholder approval.
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