Ericsson, the world's biggest maker of mobile phone networking equipment, said on Monday that it planned to cut 1,500 jobs this year, after eliminating 5,000 last year, as its profit plunged 82 percent in the fourth quarter amid declining sales in Africa, Central Europe and the Middle East.
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The company, based in Stockholm, said sales fell 13 percent in the three months through December to 58.3 billion kroner or $8.1 billion from 67 billion kroner in the period a year earlier.
Profit slipped to 700 million kroner or $97.2 million from 4.1 billion kroner a year earlier.
"Investors had higher expectations and those were not met today," said Mats Nystrom, an analyst with SEB Enskilda Bank in Stockholm. "Network equipment sales are clearly in a decline, and I expect that decline to continue for another one or two quarters at the least. There is also terrible pricing pressure."
Ericsson, facing strong competition from low-cost Chinese competitors Huawei and ZTE, said it would eliminate another 1,500 jobs, mostly in Sweden. The company employed 82,500 at the end of December.
A company spokeswoman, Ilyana Guzman, said some cuts would be made at a factory in Gavle, Sweden, with the rest coming elsewhere throughout the year.
By the end of June, Ericsson said it expected to trim 15 billion to 16 billion kroner in annual expenses, roughly 8 percent of sales, through job cuts and other expense reductions.
Ericsson's stock fell about 2.5 percent in Stockholm.
Investors were also surprised, Mr. Nystrom of SEB said, by Ericsson's decision to spend 28 billion to 30 billion kroner this year, about 15 percent of its sales, on research and development.
Some of that spending will go toward its newly purchased North American GSM network, which Ericsson bought in November from Nortel, a bankrupt Canadian rival, for $70 million.
"From a strategic perspective, the R.&D. investment makes sense," Mr. Nystrom said. "But it probably was not what the market wanted to hear."
Gains by Ericsson's professional services business, which include managing the wireless networks of global operators, partly offset Ericsson's slumping network equipment sales. Sales in the services division rose 2 percent to 16.5 billion kroner in the quarter.
Services account for about a fourth of Ericsson's sales. Last July, the company signed a seven-year deal to manage the network of the American wireless carrier Sprint, which could be worth up to $5 billion.
But outsourcing alone has not been enough to offset declines in Ericsson's main business of selling mobile network equipment, which has weakened with the recession and the saturation of most global markets with GSM networks, whose sales peaked globally in 2008.
So far, Ericsson said sales of faster, next-generation 3G networks have not been strong enough to offset the decline in GSM technology. Ericsson's network equipment sales fell 16 percent in the quarter from a year earlier as operators in emerging markets had difficulty obtaining credit, the company said.
Ericsson also continued to struggle with two money-losing ventures -- the handset maker Sony Ericsson and the chip maker ST-Ericsson. Sony Ericsson lost 167 million euros or $237 million in the fourth quarter, and 836 million euros for the year, as the number of handsets it shipped declined 40 percent.
ST-Ericsson lost $125 million in the quarter and $539 million in 2009.
SOURCE: The New York Times
