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Ericsson reports profit drop, to cut 5,000 jobs

Wed, 01/21/2009 - 7:10am
Louise Nordstrom, The Associated Press

STOCKHOLM, Sweden (AP) – Wireless equipment-maker Ericsson on Wednesday reported profits dropped 31 percent in the fourth quarter, citing restructuring charges and weaker handset sales, and said it would slash 5,000 jobs.

Still, Ericsson said its core infrastructure business was not yet feeling the effects of the global economic downturn, and its better-than-expected report sent shares up more than 10 percent to 62 kronor in Stockholm.

Net profit in the quarter fell to 3.9 billion kronor ($465 million) from 5.6 billion kronor a year earlier.

Ericsson said the results included about 3 billion kronor in restructuring charges and "a dramatic drop" in the contribution from its handset unit, Sony Ericsson. The joint venture with Japan's Sony last week said it had swung to a fourth-quarter loss of euro187 million ($243 million).

Sales received a boost from a weaker krona, rising 23 percent to 67 billion kronor, from 54.5 billion kronor a year earlier. SEB Enskilda analyst Mats Nystrom said the strong sales were the biggest surprise in what he called a "really good quarter" for Ericsson.

The world's leading maker of mobile broadband infrastructure said it released the fourth-quarter report a week ahead of schedule because it exceeded market expectations.

Chief Executive Carl-Henric Svanberg said the economic recession spreading around the world had not yet hit the network industry. Telecom operators, who build their networks with equipment from Ericsson and its competitors, still have healthy finances, he said.

"It remains, however, difficult to more precisely predict to what extent consumer telecom spending will be affected and how operators will act," Svanberg added. "To date, our infrastructure business is hardly impacted at all, but it would be unreasonable to think that this would be the case also throughout 2009."

Nortel Networks Corp., once one of Ericsson's biggest competitors, last week filed for bankruptcy protection in Canada and the U.S., becoming the first major technology company to take that step in the economic downturn.

Ericsson said it needs to widen its savings program to stay competitive. That would mean cutting 5,000 jobs, or more than 6 percent of its 79,000-strong workforce, Ericsson said.

The Stockholm-based company said it expected restructuring charges of 6 billion-7 billion kronor, yielding annual savings of around 10 billion kronor by the second half of the year.

In a Webcast news conference with analysts and journalists, Svanberg said, "We're doing this, of course, because of the uncertainty in the market."

Ericsson said full-year profits fell 48 percent to 11.3 billion kronor in 2008, from 21.8 billion kronor in the previous year. Sales grew 11 percent to 209 billion kronor.

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