Ericsson AB (ERICB), the world’s largest maker of mobile-phone networks, said it will eliminate 1,550 positions in Sweden, two weeks after reporting a slump in profit as wireless carriers curbed spending.
The cuts, amounting to 8.7 percent of its Swedish workforce, are across the board, with the majority of the reductions at the networks division, the Stockholm-based company said today. About 1,000 of the positions slated to go are based in the Swedish capital, it said.
Ericsson joins Nokia Siemens Networks and Alcatel-Lucent SA in reacting to spending cuts among mobile-phone companies hurt by a slowing economy and competition from Chinese manufacturers. The Swedish company, which has projected 4 billion kronor ($600 million) in restructuring costs for 2012, reported one-time costs of 1.7 billion kronor for the first nine months.
“Something big was bound to happen in the fourth quarter,” said Lars Soederfjell, an analyst at Aalandsbanken in Stockholm. “If you look at network margins, they were down to 5 percent in the third quarter and they have a target of returning to double-digit margins so in order to get there without much top-line growth in the near term, they need to take steps.”
The shares rose as much as 1.1 percent after the announcement and traded 0.7 percent lower at 58.30 kronor as of 12:14 p.m. on the Stockholm exchange. They had declined 17 percent this year through yesterday.
By cutting jobs, Ericsson is acting on a sales forecast it trimmed in March, when it predicted compound growth of between 2 percent and 8 percent through 2014. The manufacturer yesterday said the global market for telecommunications hardware will grow by an average 3 percent to 5 percent a year through 2015, supported by increases in smartphone use.
Ericsson’s revenue per employee last quarter was 17 percent higher than Alcatel-Lucent’s and at a similar level to Nokia Siemens. Selling and administrative expenses, at 11 percent of its sales, also beat Alcatel-Lucent’s 16 percent.
The Swedish company said it’s negotiating with union representatives and expects to inform all employees affected by the plan by March 2013.
“We must ensure that we can continue to execute on our strategy to maintain our market leadership, invest in R&D and meet our customers’ needs,” said Tomas Qvist, head of Ericsson’s human resources in Sweden. “To secure this we need to focus on reducing cost, driving commercial excellence and operational effectiveness.”
To offset the slower demand and rivalry from Huawei Technologies Co. and Nokia Siemens, Ericsson is trying to sell more services such as network management and maintenance.
Nokia Siemens, the venture between Nokia Oyj (NOK1V) and Siemens AG (SIE), announced plans a year ago to cut 17,000 positions, or 23 percent of its headcount. Alcatel said last month it will eliminate 5,500 positions, or 7 percent of its workforce. The unprofitable French manufacturer would need to slash another 10,000 jobs to catch up with its rivals’ efficiency figures.