Ericsson’s Inefficiency Seen Leading to Further Job Reductions

  • Revenue per employee trails Cisco, other equipment makers
  • Stock plunges after quarterly sales, profit miss estimates

Ericsson Shares Drop Most in 9 Years, What's Next?

The sales slump that triggered a plunge in Ericsson AB shares probably will lead to further job cuts at the Swedish maker of wireless-phone network equipment.

Revenue per employee in dollars -- the currency in which a majority of Ericsson’s business is priced -- has been in decline since 2012, according to data compiled by Bloomberg, and the company brings in much less in sales by that measure than Cisco Systems Inc. That means interim Chief Executive Officer Jan Frykhammar will need to cut a lot more jobs than the 3,000 announced last week, said Neil Campling of Northern Trust Capital Markets.

Ericsson, with about 116,000 workers, brings in $251,900 for each employee, while Cisco takes in $668,210, the data show.

“It is clear to see that Ericsson is extremely inefficient relative to another global equipment company such as Cisco,” Campling said. “It just seems to me that the announcements of the employment cuts are very, very small.”

Ericsson lost about $3.8 billion in market value Wednesday as the stock plunged on the biggest decline in quarterly sales in 13 years.

While waiting for spending on so-called 5G networks to kick in, Ericsson has been losing sales to competitors like Nokia Oyj, which has broadened its portfolio with the purchase of Alcatel-Lucent SA, and Huawei Technologies Co., which competes effectively with Ericsson on price while offering a wider array of products.

Ericsson last week announced plans to eliminate 3,000 jobs in Sweden, a fifth of the workforce in the country, as the company curbs production to cope with shifting technology and stagnant demand. Ericsson has added about 26,000 staff over the last five years.

Ericsson ousted its chief executive officer in July and has targeted cost cuts aimed at saving 9 billion kronor ($1.05 billion) a year by 2017.

— With assistance by Niclas Rolander

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