Ericsson has given notice to most of the employees who will lose their jobs as a result of the company’s cost-reduction program. The world’s largest wireless equipmentmaker said that 2,100 people in Sweden are affected, but only 1,700 are actually leaving Ericsson. The rest are presumably moving to other positions at the company. Earlier this year, Ericsson said that as many as 2,200 jobs could be impacted by its cost cuts.
Competition and changes in the network equipment business are two of the main drivers of Ericsson’s cost-reduction program. The company faces stiff competition from Huawei and ZTE, both of which have lower cost structures than Ericsson. At the same time, many key telecom network functions are moving from hardware to software, and infrastructure providers need to make corresponding changes in their workforces.
Ericsson hopes to generate roughly $1 billion in cost savings by 2017. The company is reducing headcount and external costs, and is focusing on increasing the efficiency of its research and development efforts and its supply chain. Most of the individuals impacted by the job cuts work in R&D or in supply.
The cost restructuring program was put into place before Ericsson’s two biggest European rivals, Alcatel-Lucent and Nokia, announced plans to merge. Some observers are wondering whether that merger will also result in headcount reductions, but so far there have been no announcements.
Acquiring new talent?
The Nokia/Alcatel-Lucent merger announcement sparked speculation that Ericsson will also feel pressure to make an acquisition. The company currently has $8 billion in cash on its balance sheet, more than enough to cover its anticipated restructuring charges and perhaps make an acquisition. Juniper is often mentioned as a potential Ericsson target, but the company’s recent history shows a focus on software, not hardware.
“We think if Ericsson makes acquisitions, it is likely to look at smaller transactions with a bias toward software and video,” analyst Simon Leopold of Raymond James wrote in a research note, adding that nine of the 10 acquisitions Ericsson has made during the last five years have been software or video-related.
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