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Wednesday, January 21, 2009

Ericsson looks to cash in on rivals’ weakness

FW: Ericsson announces further 5,000 job cutsEricsson, the Swedish telecoms equipment maker, is hoping to take advantage of the weakness of some of its rivals to strengthen its position as the world’s leading supplier of mobile phone networks during the economic downturn.
“This is not the time to buy market share,” said Carl-Henric Svanberg, Ericsson’s chief executive. “It will come by itself because there are weaker players.”

His comments came as Ericsson said it was cutting 5,000 jobs in 2009 as it steels itself for the possibility of reduced orders during the downturn. The cuts represent about 6 per cent of its 78,000-strong workforce.

Mr Svanberg said the company was determined to preserve its profitability. It shed 4,000 jobs last year. He said the collapse of Nortel, its smaller Canadian rival, might allow Ericsson to increase its market share. He also highlighted the vulnerability of Motorola, the struggling US mobile phone maker. He added that the weakness of rivals in the industry could enable Ericsson to increase its 40%+ share of orders for mobile phone networks.
The final 3 months of the year are normally the best for the telecoms equipment makers and Ericsson’s sales exceeded expectations.

Ericsson reported 4th quarter sales for 2008 of SKr67bn ($8bn), up 23%, partly because of favourable exchange rate movements.
4th-quarter net income fell 31% to SKr3.89bn. For the full year, Ericsson recorded sales of SKr208.9bn, up 11%, but net income fell to SKr11.7bn, a drop of 47%.

Earnings were depressed by restructuring charges partly relating to the 4,000 redundancies last year, as well as losses at Sony Ericsson, Ericsson’s joint venture with Sony of Japan, which makes mobile phones.
In its new assault on costs, Ericsson is looking for annual savings of SKr10bn from the middle of next year. The job cuts will result in restructuring charges of SKr6bn to SKr7bn.

Defending the decision, Mr Svanberg said: “If you look at today’s world, how Nortel has disappeared, Motorola is on the way out ... several are struggling. We have a huge responsibility to take every measure to defend our position.”
Ericsson said last October that it was planning for zero growth in the mobile infrastructure market in 2009, but yesterday indicated it was preparing for a decline.

Mr Svanberg acknowledged the market might shrink in 2009. Alcatel-Lucent, the Franco-American telecoms equipment maker, predicted in December that the fixed line and mobile infrastructure market would decline by 8-12%.

Mr Svanberg did not rule out the possibility that Ericsson might be interested in some assets of Nortel, the Canadian telecoms equipment maker that filed for bankruptcy protection this month.

By Andrew Parker in London and David Ibison in Stockholm
January 21 2009

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