Ericsson announces profit drop, 1,000 job cuts

 

 

Beleaguered Swedish telecom infrastructure group Ericsson, hit hard by a slowdown in the telecom sector, announced on Friday a 17-per cent fall in 2007 net profit and the shedding of 1,000 jobs in Sweden.

 

Net profit for the full-year fell to 21.8 billion kronor ($3.4 billion; Dh12.41 billion) although sales increased by 4.0 per cent to 188 billion kronor ($29.55 billion; Dh108 billion).

 

Ericsson also announced plans to cut 4 billion kronor ($629 million; Dh2.3 billion) from its annual cost base, leading to 1,000 job cuts in Sweden.

 

"These reductions will have full effect in 2009. All parts of the business will be affected," the company said.

 

The price of shares in the group fell by 4.41 per cent to 13.67 kronor ($2.15; Dh7.8) on the stock market here. The overall market was showing a gain of 1.33 per cent.

 

Chief executive officer Carl-Henric Svanberg did not exclude the possibility of job cuts in other countries as well. Ericsson has 74,000 employees worlwide, of whom 19,800 are in Sweden.

 

"The 1,000 in Sweden is what we are targeting. Totally in the world we haven't estimated precisely the number because (we have) a combination ... of temporary workers, consultants, suppliers," he told the media.

 

Swedish news agency TT reported that 4,000 jobs could go, but that number was not confirmed.

 

For the fourth quarter of 2007, the company reported a 42-percent drop in net profit to 5.6 billion kronor ($880 million; Dh3.2 billion) from 9.7 billion ($1.53 billion; Dh5.6 billion) a year earlier.

 

Sales during the period remained stable at 54.5 billion kronor ($8.57 billion; Dh31.28 billion), compared to 54.2 billion ($8.52 billion; Dh31.1 million) during the fourth quarter of 2006.

 

Operating profit fell by 38 per cent to 7.6 billion kronor ($1.19 billion; Dh4.34 billion), while the operating margin shrank from 22.5 per cent a year earlier to 14 per cent.

 

That was below analysts' expectations of 14.8 per cent.

 

Svanberg said Ericsson had experienced "significant margin erosion in our networks business" during the fourth quarter.

 

"The continued rapid build out of mobile communications in emerging markets and our significant market share gains have resulted in a higher proportion of new network builds with initial lower margins," he said.

 

"At the same time, we have seen a decline in network expansions and upgrades in mature markets," he added.

 

Ericsson shocked markets in mid-October when it announced that its earnings would be sharply weaker than expected in the third quarter due to a slowing market that was seen continuing through 2008.

 

It said investments in mobile network expansions and upgrades, which bring in more money than new rollouts, were slowing down and there was also rising competition from Asia.

 

While Ericsson remains a solid industrial company and a world leader in its field, shareholders have been fleeing the group en masse, sending the stock price into freefall after the October 16 profit warning.

 

The Ericsson share was valued at 28.2 kronor ($4.43; Dh16.2) on the Stockholm stock exchange at the start of the 2007 and since October has lost more than half of its value. (AFP)