Ericsson to cut 1000 more jobs

STOCKHOLM: Swedish telecoms equipment maker Ericsson would cut thousands more jobs as the market for its products looked set to fall more sharply than previously expected. The swift action by new Chief Executive Carl-Henric Svanberg showed the company's determination to adjust to the market conditions, investors said, and sent its shares soaring by almost 30 percent.

The world's biggest producer of mobile networks had its 10th straight quarter in the red, with an adjusted pre-tax loss of 3.5 billion crowns ($421.4 million) in the three months to March against market expectations of a 3.3 billion shortfall. Sales plunged an expected 30 percent year-on-year to 25.9 billion crowns. Orders fell to 27.1 billion against a Reuters consensus estimate of 26.5 billion and 41.9 billion a year ago.

"The macroeconomic environment has become more uncertain with weaker short-term demand, further actions are therefore needed," Svanberg said. "Although first-quarter sales are likely to be the low point this year, I want us to be able to generate profit even if sales remain at current levels," he said in a statement.

Talk of deeper job cuts grew when Svanberg, who focused on margins in his last post at lockmaker Assa Abloy, arrived three weeks ago. The workforce will fall to 47,000 next year from 52,000 planned for the end of 2003 and 61,000 now. Without the new cuts, 2003 would have ended with 54,000 staff, he said.

Half of the new job cuts will be in Sweden. The scheme, to be completed in the third quarter of 2004, will cost 11 billion crowns and shave five billion from annual operating expenses and eight billion off the cost of sales. No particular area of operations will be singled out for the cuts.

Competitors such as Finnish mobile phone giant Nokia and Motorola of the United States also announced new but smaller job cuts in April because of the deteriorating market.

Ericsson shares jumped 28 percent on the Stockholm bourse to trade at 7.95 crowns at 1400 GMT in five times the average 30-day volume, easily outperforming the DJ Stoxx technology index which rose 3.7 percent.

STRONG WORDS

"What really makes the day for this report is what they are saying about additional restructuring," a Swedish fund manager said. "The new CEO uses strong, confident words." Investors see cost cutting as vital as global demand for telecoms equipment falls. Some operators are slashing spending or delaying the launch of ultra-fast 3G mobile networks.

The Ericsson job cuts earned it an immediate recommendation upgrade to "in-line" from "underperform" from Goldman Sachs.

Ericsson said second-quarter sales would be up slightly on the first, but Svanberg told reporters not to expect dramatic changes as the timing of a rebound was difficult to predict. Rivals also expect a stronger second quarter.

Annual operating expenses fell to 47 billion crowns in the first quarter from 51 billion in the last three months of 2002, one billion crowns ahead of schedule. The target for operating expenses for the fourth quarter is 38 billion.

Cost cuts boosted the gross margin to 34.1 percent from 32.6 percent in the previous quarter, with more gains due this year, Svanberg said. But the weakness of the dollar, in which Ericsson invoices more than half of its sales, was working against it.

"Impressive. This report is just as strong as the fourth quarter was weak," said Per Lindberg, analyst at Dresdner Kleinwort Wasserstein.

REVISED OUTLOOK

Ericsson predicted mobile systems sales would fall more than 10 percent this year in dollar terms as operators cut investment amid economic uncertainty compounded by the war in Iraq and the SARS outbreak.

It had previously expected a decline of up to 10 percent this year. The new forecast is more in line with that of Nokia and Germany's Siemens, which see the market declining 15 percent or more. Motorola sees a fall of up to 12 percent.

French Alcatel said on Tuesday that demand for telecoms equipment would fall several percentage points more than the 15 percent it predicted in February.

"The 15 percent is calculated in euro, and we have 10 percent in dollars. Our forecast converted to euros equals a fall of 15 to 17 percent," Ericsson Chief Financial Officer Karl-Henrik Sundstrom said.

He told a teleconference that sales of 3G WCDMA networks, in which Ericsson has invested heavily, would provide 12 percent of its mobile network sales this year and a third in 2005.

Despite the losses, Ericsson had positive cash flow of 700 million crowns in the first quarter and Svanberg said it would not need to ask capital markets for more money after the firm's $3.2 billion rights issue in September 2002.

© Reuters