Ericsson profits fall, 1,000 jobs cut

Beleaguered Swedish telecom infrastructure group Ericsson, hit hard by a slowdown in the telecom sector, announced a 17 per cent fall in last year's net profit.

Net profit for the full year fell to €2.3 billion, although sales increased by four per cent.

Ericsson also announced plans to cut four billion kronor from its annual cost base, leading to 1,000 job cuts in Sweden. "These reductions will have full effect next year. All parts of the business will be affected," the company said. 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 last year, the company reported a 42 per cent drop in net profit to 5.6 billion kronor from 9.7 billion a year earlier.

Sales during the period remained stable at 54.5 billion kronor, compared to 54.2 billion during the fourth quarter of 2006. Operating profit fell by 38 per cent to 7.6 billion kronor, 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. Mr 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."

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 foreseen continuing this year.

It said investments in mobile network expansions and upgrades, which bring in more money than new roll-outs, 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.