Ericsson to Slash 11,000 Jobs to Save SK3 Bln a Year (Update2)
Bloomberg News
Jan 25 1999 12:15PM ET
Ericsson to Slash 11,000 Jobs to Save SK3 Bln a Year (Update2)
(Adds CEO comments in 4th, 5th, 11th and 12th paragraphs.)
Stockholm, Jan. 25 (Bloomberg) -- Ericsson AB, the world's No. 3 mobile phone maker, said it will slash more than a tenth of its workforce in the next two years to cut costs by 3 billion kronor ($388 million) after profit growth slowed last year.
Sweden's biggest company by market value, which last month indicated it would shed about 10,000 jobs, said it will cut 11,000 positions, mainly in its fixed-line operations.
''It's positive that they're being more specific on where the measures will be taken,'' said Anders Elgemyr, an analyst Fischer Partners, who rates the stock ''neutral.'' Still, ''this is only for the cost side, now they need to be more offensive in its growth segments.''
The move comes after Ericsson last month said fourth- quarter profit will undershoot analysts' estimates because of weak demand for its fixed-line switches and stiffer competition from market leader Nokia Oyj's new, sleek mobile phones. As phone service companies like Vodafone Group Plc and AirTouch Communications Inc. merge, competition within infrastructure will also intensify, Ericsson Chief Executive Sven-Christer Nilsson said in an interview.
''Within five to 10 years there will be 10 to 15 truly global operators,'' said Nilsson, who took Ericsson's helm in March. The restructuring aims ''to secure competitiveness in the new world that is now developing,'' he added at a press conference.
The cost reductions are part of an overhaul announced in September that included combining Ericsson traditional fixed- line and mobile equipment businesses. That reorganization is also expected to help lift sales by 20 percent a year.
Ericsson will take charges for the reorganization this year and next. Without specifying the amount of the charges, the company said they'll be matched by cost savings. Beginning in 2001, costs will be reduced by 3 billion a year.
Division Breakdown
Ericsson said it will cut 8,500 jobs in its Network Operators unit, which includes the former Infocom unit that makes switches and other transmission equipment for traditional fixed telecommunications networks. Infocom has long dogged Ericsson because of delays in its cost-cutting program and problems getting deliveries to customers on time.
Network Operators, selling both wireless and fixed telecommunications equipment to mobile phone services companies, is Ericsson's biggest unit with 68,000 employees.
Enterprise Solutions, a unit that focuses on products for businesses, will slash 1,300 jobs, while the mobile phone arm, Consumer Products, will lose 500. Another 1,300 will be cut within general administration and other operations. Of the total, 3,300 jobs will go in Sweden.
Some 5,000 jobs will be shed this year and 6,000 jobs in 2000.
The company said future data-related products will take less time and labor to produce. For example, the 1997 model of Ericsson's AXE switches took about three weeks to produce and three months to install, while the next generation of AXE switches to be introduce 2001 will take five hours to make and less than a week to install.
''The shift from old to new products has gone faster than anyone expected,'' said Nilsson.
Ericsson shares closed down 0.5 krona at 184 in Stockholm, while the company's American depositary receipts rose 1/16 to 23 7/8. The stock has plunged 30 percent since peaking on July 21 last year after the Stockholm-based company rattled investors when it said phone sales stagnated in the second quarter. In the third quarter, they fell 2 percent.
Ericsson is expected to report a 3 percent rise in fourth- quarter profit to 5.016 billion kronor ($650 million) on Jan. 28. --Linda Andersson in the Stockholm bureau (468) 610 0700 jl/mbb Story illustration: LMEB SS
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