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 48 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 fell 3.5 percent to 13.80 kronor, to 13.80 kronor 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 created its venture with Sony in 2001 after the companies' separate mobile-phone businesses continued to lose money. Motorola Inc., the world's third largest mobile-phone maker, said yesterday it will consider splitting off its handset unit and is examining options including a possible sale.

``We would have a cautions view'' on the Motorola assets, Svanberg said on a conference call with analysts. Integrating large purchases is ``cumbersome,'' he said.

Gaining Market Share

Ericsson competitors have also suffered from the industry slowdown. In September, Alcatel-Lucent SA cut its 2007 sales forecast and has announced it will eliminate about 20 percent of the workforce. Nokia Siemens Networks, the venture formed by Nokia Oyj and Siemens AG of Germany last April, is slashing 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, including the acquisition of Tandberg Television ASA, a maker of video compressing equipment, for 9.8 billion kronor. At the same time, Ericsson has built up its fixed-network division with the purchase of Marconi Plc for about 1.2 billion pounds ($2.4 billion) in 2005 and has sought to bolster its position in the U.S. with the acquisition of Redback Networks Inc.

To contact the reporter on this story: Maria Fredriksson in Stockholm at mfredriksson@bloomberg.net

Last Updated: February 1, 2008 11:46 EST