Ericsson Posts Lower Net, Will Trim Up to 4,000 Jobs
Feb. 1 (Bloomberg) -- Ericsson AB, the world's largest maker of wireless networks, reported the biggest drop in profit since 2003 and said it will cut as many as 4,000 jobs globally.
Fourth-quarter net income fell to 5.64 billion kronor ($879 million), or 0.35 krona a share, from 9.7 billion kronor, or 0.61 krona, the Stockholm-based company said today. Ericsson will slash 4 billion kronor in annual expenses by 2009, and book charges of the same amount.
Ericsson has fallen 47 percent in Stockholm trading since lowering sales targets twice in the fourth quarter. In October, Chief Executive Officer Carl-Henric Svanberg blamed slowing growth on lower network spending in Europe and North America. Today, he forecast ``flattish'' demand for networks this year. Ericsson, which cut more than half its workforce between the end of 2000 and early 2004, now employs 74,000 people.
``Obviously the results aren't great, but it feels like the situation is stabilizing,'' said Michiel Plakman, a fund manager at RobecoGroup in Rotterdam, which oversees about 150 billion euros and owns Ericsson shares. ``The cost cuts are necessary to stabilize the ship, but won't help the stock.''
Ericsson dropped as much as 5.4 percent to 13.53 kronor, and traded at 14.05 kronor as of 1:10 p.m. in Stockholm trading. The dividend for 2007 will be unchanged at 0.50 krona a share.
`Competitive Position'
Sales rose to 54.5 billion kronor from 54.2 billion kronor. In November, Svanberg said fourth-quarter sales would be at the bottom end of a forecast range of 53 billion kronor to 60 billion kronor he gave the month before. Net income and sales were in line with analysts' estimates in a Bloomberg survey.
The company said it will trim 1,000 jobs in Sweden through voluntary programs to protect its ``competitive position.''
``There will possibly be 3,000 job cuts outside Sweden,'' Svanberg said in a Bloomberg Television interview.
Cost cuts will be made across the company, except in research and development, where the company will be ``more cautious,'' Svanberg said at a press meeting in Stockholm today.
Svanberg, 55, became CEO in April 2003 and accelerated cost cuts started by his predecessor to save Ericsson from collapse.
Chief Financial Officer Karl-Henrik Sundstroem resigned nine days after the company's sales miss in the third quarter. A month later, when Ericsson said fourth-quarter sales would be at the low end of its forecast range, Svanberg blamed a declining U.S. dollar and unrest in Pakistan.
Industry Slowdown
``For 2008, we are planning for a flattish development in the mobile infrastructure market while the professional services market is expected to show good growth,'' Ericsson said today.
Ericsson's gross margin, or the percentage of sales minus production costs, shrank to 36.1 percent from 42.2 percent a year earlier, beating the 36 percent analyst estimate in an SME Direkt survey. Ericsson's operating profit as a percentage of sales fell to 14 percent from 22.5 percent, missing the 14.8 percent analysts in the SME survey had predicted.
Operating profit fell 38 percent to 7.6 billion kronor from a year earlier. Sony Ericsson Mobile Communications Ltd., the company's 50-50 venture with Sony Corp., contributed 2.3 billion kronor to Ericsson's operating profit in the quarter.
Ericsson competitors have also suffered from the slowdown. In September, Alcatel-Lucent SA, based in Paris, cut its 2007 sales forecast on fewer-than-anticipated orders in North America. The company's CFO announced his resignation the same day. The French company has announced it will cut 16,500 jobs, or about 20 percent of the workforce.
Gaining Market Share
At the same time, Nokia Siemens Networks, the venture formed by Nokia Oyj and Siemens AG of Germany last April, is cutting about 15 percent of its workforce to reduce costs.
``We have grown faster than the market and we expect to continue to do so,'' Svanberg said at the press conference. The company's market share gain in 2008 will likely be lower than last year's, he said in the television interview.
Under Svanberg, Ericsson has reorganized into three business divisions making fixed networks, wireless networks and multimedia applications such as Web-based television broadcasting. The multimedia unit posted an operating loss of 439 million kronor in the fourth quarter.
Svanberg has relied on purchases to strengthen the multimedia division, acquiring Tandberg Television ASA, a maker of video compressing equipment, for 9.8 billion kronor and voicemail services company Mobeon AB. Last year, Ericsson agreed to buy Drutt Corp., which makes software that lets operators charge for content on handsets over wireless networks, and German billing software company LHS AG. To contact the reporter on this story: Maria Fredriksson in Stockholm at mfredriksson@bloomberg.net
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