Ericsson said it was on track to slash a portion of total jobs cuts as part of massive reorganization, with associated costs pulled into 2016 results.
Ericsson has moved on eliminating more than half of the 3,000 jobs it said was necessary as part of an ongoing global cost and efficiency program as the vendor looks to stabilize operations.
The company said a recently instituted “voluntary program” has resulted in 1,600 employees set to leave the company by the end of the year. Ericsson said the program included a combination of a “voluntary reduction, reduction of production in Sweden, outsourcing and natural attrition during 2016,” and that at this time it did not expect to move on any new “forced staff reductions” in Sweden beyond what has already been announced.
The company did alter cost estimates tied to the company’s restructuring efforts, pulling some of the costs into 2016, which it said was due to a quicker than expected implementation of the program. Ericsson said it now expects to see costs of between $600 million (5.5 billion Swedish Krona) and $710 million in 2016, compared with previous estimates of between $437 million and $546 million.
“Restructuring charges for 2017 are expected to somewhat decrease as a consequence of faster implementation of the Swedish reduction activities,” the vendor noted in a statement.
In terms of other program metrics, Ericsson said it remained on track to reduce the annual run rate of operating expenses, excluding restructuring charges, to $5.8 billion in the second half of 2017; and “make cost of sales reductions visible in the gross margin in the second half of 2017, compared to full year 2016.”
Ericsson in October announced the initial plans to cut 3,000 jobs from the approximately 16,000 workers it has in its home country. The move followed up on plans to eliminate manufacturing facilities in Sweden.
Despite its dominate position in the telecom equipment market, Ericsson has been struggling for several years in the face of strong competition from East Asian suppliers of wireless infrastructure, coupled with an industry shift to software-based solutions. The company is increasing its focus on software and has had to lay off many of the people whose work was primarily related to hardware.
The vendor is also facing a bolstered competitor in Nokia, which earlier this year closed on its acquisition of rival Alcatel-Lucent. Ericsson has partnered with Cisco in a move designed to give the Swedish company access to some of the same wireline capabilities that Nokia gained from its merger with Alcatel-Lucent.
Longtime Ericsson CEO Hans Vestberg abruptly left the company earlier this year, eventually being replaced by former CFO Jan Frykhammar. Prior to leaving the company, Vestberg unveiled a massive reorganization of Ericsson’s operations.
One bright spot for Ericsson could come from “5G” technologies, which the company has been aggressively pursuing in terms of research and testing. The company recently released equipment tapping into plans for the so-called 5G “new radio” standard and expected need for expanded multiple-input/multiple-output antenna support.
The vendor has also announced a handful of 5G-based network trials with large telecom operators, including AT&T, China Mobile, Verizon Communications, Telefónica, T-Mobile US and Sprint. However, commercial deployments are not expected to ramp until at least 2018, as the technology is without a common standard.
Ericsson has said it expects North America to be a leader in terms of early adoption of 5G technologies. In a recent report the company predicts North America will lead the world in 5G connections by 2022, with the region accounting for 25% of the forecast 550 million 5G connections worldwide. The Asia-Pacific region is expected to be the second fastest in terms of 5G subscription growth, accounting for 10% of 5G connections by 2022.
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