Ericsson really getting hammered: Let's see them "spin" and "Lobby" (the ITU and ETSI) their way out of this!
NEW YORK -(Dow Jones)- Citing the continued impact of the global
financial crisis on demand for its products, Swedish telecommunications
firm Telefon AB LM Ericsson Thursday said it would slash about 10,000
jobs, or 10% of its work force, next year as it expects 1998 results to
be below analysts' forecasts.
Ericsson (ERICY) said it has seen signs of recovery in some Asian
markets, but that wider repercussions on global demand are now affecting
sales and income. The company plans to detail the job cuts when it
releases its 1998 financial report on Jan. 28. Analysts surveyed by
First Call were expecting the company to earn 87 cents a share this
year. In 1997, Ericsson earned $1.49 billion, or 81 cents a share, on
revenue of $21.03 billion.
Chief Executive Sven-Christer Nilsson in October warned of slowing
global demand but firmly ruled out job cuts. At that time, Nilsson said
the company benefited from the geographical spread of its operations,
which reduced exposure to problems in individual economies. Thursday's
news seems to contradict that assessment.
It wasn't immediately known where those jobs would be cut. The
company has operations in 140 countries.
The news stunned investors Thursday. In Stockholm at midafternoon,
Ericsson's shares were down 52 kroner, or 22%, at 185 kroner. The
company's American depositary receipts trade on the U.S. Nasdaq Stock
Market under the symbol ERICY.
Ericsson of late has been plagued by a plunging stock price,
virtually flat sales of mobile phones, and organizational problems. Its
share price has been slipping amid problems with its latest mobile-phone
models. But it had announced a major organizational overhaul that
included a new strategy that will see the Swedish giant increase its
commitment to Internet technology, a path it says will power group sales
growth by more than 20% a year.
The company is hoping to capitalize on the convergence of the telecom
and data communications industries. Those industries are rapidly
converging as companies race to develop gear that can handle voice,
video and data simultaneously. Lucent Technologies Inc. (LU) is
broadening its line of data-networking products to help telephone
companies manage the exploding streams of data, voice and video traffic
traversing their networks. Its primary rival, Cisco Systems Inc. (CSCO),
is going after those same customers with its own line of routers,
switches and other data-networking gear.
Ericsson is quickly losing its battle with Finland's Nokia Oy (NOKA),
its primary rival, which recently said it expects sales growth of up to
35% in 1999 and positive cash flow from operations despite uncertainty
about the global economy. Nokia said it expects to grow through new
partnerships and acquisitions in the coming years.
Buoyant third-quarter sales helped Nokia to post earnings that
clearly beat expectations. It claimed to have "significantly" increased
its market share in mobile phones to become the largest manufacturer in
the world. That was proven to be true when recent market research showed
that Nokia has taken a commanding lead of the U.S. digital handset
market with a 40.3% share - more than double its 19.8% share in all of
1997. Ericsson, which had a dominating lead over Nokia in 1997, was far
behind in second place at 20.6%.
Nokia is clearly on a roll. Its first-half pretax profit surged 67%,
buoyed by solid sales in the U.S. and strong acceptance of its new line
of mobile phones. Those results also beat forecasts, as sales grew 27%.
Nokia attributes much of its subscriber growth to consumers'
acceptance of new products. Indeed, Nokia just unveiled three new
products - an analog "wearable" cellular phone and two digital wireless
phones. The analog phone, which can store up to 75 names and numbers and
includes Caller ID capability, is scheduled for shipping in January. The
company also plans to equip future phones with advanced data-transfer
capabilities, such as the ability to exchange business cards
electronically, send e-mail messages or access the Internet.
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