Ericsson enjoys solid quarterly financials, but cuts 5,000 jobs: Wireless network vendor warns of tough times

As other infrastructure companies struggle, L.M. Ericsson continues to buck the trend, posting a strong fourth quarter in 2008 that netted sales of $7.9 billion. However, the Swedish company will continue with cost-saving measures that it started last year by cutting 5,000 jobs this year and paying restructuring charges that will be between $720 million and $840 million, according to the company.
“We had a solid performance in 2008,” Carl-Henric Svanberg, Ericsson CEO and president, said in a statement. “Sales grew by 11% with good demand for our entire portfolio and across the world.”
For 2008 overall, the company posted sales of $24.8 billion, which was higher than the company’s 2007 performance, when $22.3 billion in sales were posted.
The company’s stock was up $1 following the news at $7.64 per share.
Ericsson continues to dominate in the wireless infrastructure market and saw its mobile broadband unit have a breakthrough year.
“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,” Svanberg said of the economic downturn.
The current economic climate has taken its toll on competitors in the infrastructure market. Nortel Networks Inc., Motorola Inc. and Alcatel-Lucenthave all posted huge financial losses.
Nortel filed for bankruptcy last week.
Nokia Siemens Networks, which posted a slight loss in the third quarter, is expected to unveil its fourth-quarter results tomorrow.
Ericsson was able to build off a strong third quarter, which surprised analysts.
In the final quarter, sales in networks for Ericsson increased 22% and increased by 10% overall in 2008. The company said major 3G rollouts are ongoing in many markets, while key markets, such as India and China, will start building 3G networks. Earlier this month, the Chinese government approved plans to issue 3G licenses.
Maynard Um, an analyst with UBS Financial Services Inc., said in a note to investors that Ericsson’s results exceeded expectations.
Um said as the company moves forward positive signs include its cost-cutting measures and its margins increased despite a negative network rollout mix. However, Um said growth areas, such as China and Africa, may decline.
“We believe the core trends will begin to deteriorate,” according to UM.
Ericsson said mobile broadband is now firmly established with network launches in several countries. Ericsson said it is committed to the 4G technology LTE, and said it signed its first contract for a commercial LTE network earlier this year, with TeliaSonera.
“The economic recession is spreading across the world,” Svanberg said. “The effects the global mobile network market should not be that significant as most operators have healthy financial positions, there is a strong traffic growth and the networks are fairly loaded.”
However, Svanberg concedes it is difficult to predict how consumer spending will be affected by the economic downturn and how operators will react.
The company increased sales in every region of the world for the fourth quarter. Sales in Asia Pacific increased 49% and 16% for the entire year. In Latin America, sales increased 16% in the fourth quarter and 25% for the entire year. Business in North America also increased 13% and 34% for the entire year.
In Central and Eastern Europe, Middle East and Africa, sales increased 24% and 9% overall for the entire year. Although Ericsson posted a 5% increase in sales in Western Europe for the final quarter, sales decreased 2% for the entire year.
Last year, Ericsson started to reduce costs by cutting 4,000 jobs. This year, the company will cut an additional 5,000 jobs and 1,000 of those jobs will be eliminated in Sweden, primarily in Stockholm. The company is expecting the cost-cutting measures to net $1.2 billion in annual savings by the middle of 2010.
“We are leveraging synergies between our different technologies and taking advantage of opportunities in the transformation to all-IP networks,” Svanberg said. “As the savings largely are the result of more efficient ways of working, our strategy will remain intact and our unique capabilities should not be affected.”