STOCKHOLM, Sweden—Ericsson has dismissed market speculation in Sweden that its latest swing of the downsizing ax is driven by a need to attract a takeover suitor.
Nokia is being linked as the likely acquirer, although students of corporate history will well recall that on the previous occasion Nokia took an acquisitive interest in Ericsson, the result almost sent the company to an early grave.
Nokia would certainly jump at the chance of acquiring Ericsson’s mobile handset and short message service (SMS) technology operations. However, the Finnish company may well have second thoughts if the asking price is unreasonable. For its part, Ericsson is unlikely to strike a deal on the basis of a straight takeover. A “merger of equals” is a more likely scenario.
Superstition could also restrain Nokia’s interest in Ericsson. Nokia’s US$1.2 billion acquisition of Ericsson’s PC business in 1999 sent it into a debt spiral from which it was lucky to recover.
Ericsson’s need to slash overhead was reflected in its first-quarter net loss of US$290 million. This result compares with a net profit of US$48 million earned in the same period in 2001. The company’s ability to generate a profit has been seriously hit by a near freeze on spending by telecom network operators, themselves heavy with debt.
The need to reduce operating costs and a nagging debt burden caused Ericsson’s board to pencil in 20,000 redundancies to its worldwide organization in 2002 and 2003. About 10,000 layoffs are expected in 2002, with a further 10,000 in 2003. Ericsson slashed 22,000 jobs, 20 percent of its work force, in 2001. About 80 percent of the cuts will be made in Sweden.
Sony, Ericsson’s strategic Japanese partner for handsets, can also be numbered among possible acquirers. Ericsson may well decide to spin off one or more divisions. The Swedish company is the world’s biggest maker of mobile networks and, together with Sony, is the third-largest handset supplier.
In a further bid to cut costs, Ericsson plans to relocate production of handsets from Europe to Southeast Asia, and in particular to Beijing. Sony Ericsson is expected to take over manufacturing operations by year-end.
