The Wall Street Journal-20080202-Earnings Digest- Ericsson Plans for a Tough Year- Cut of 4-000 Jobs Is Set In a Bid to Pare Costs- Profit Tumbles 42-
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Earnings Digest: Ericsson Plans for a Tough Year; Cut of 4,000 Jobs Is Set In a Bid to Pare Costs; Profit Tumbles 42%
Full Text (435 words)Telefon AB L.M. Ericsson posted a 42% drop in fourth-quarter net profit on Friday and said it plans to shed about 4,000 workers globally as it seeks to rein in costs ahead of a difficult year.
The Sweden-based wireless-equipment maker lowered its outlook for 2008 telecom-equipment demand, saying it expects "flattish" market developments.
Ericsson shares were 3.5% lower at 13.80 Swedish kronor ($2.17), underperforming a broadly higher Stockholm market and a 0.6% gain in the Euro Stoxx 600 Telecommunications index.
Ericsson said it aims to cut costs of about four billion Swedish kronor a year and expects the plan to take full effect in 2009. While the company said it anticipates good growth in the professional- services market, it expects short-term margin tightness to persist in the networks segment.
The company stunned the market in October with a profit warning due to weak sales of high-margin network upgrades and expansions, combined with a larger proportion of low-margin network-rollout deals.
"We find it prudent to plan for a flattish infrastructure market," Ericsson Chief Executive Carl-Henric Svanberg said in an interview Friday, citing fewer expansions and upgrades by existing wireless- carrier customers as well as a slowdown of rollouts of new networks in markets such as Pakistan due to political unrest.
Mr. Svanberg said that in terms of the macro economy, Ericsson has seen slower growth in the U.S., which he attributed to "precaution" from carriers, as well as smaller operators delaying expansions because they are having difficulty raising financing. But, he added, "I wouldn't say there is a one-to-one relationship" because there are many markets in the world that continue to roll out networks.
Rival Motorola Inc. said Thursday that it is considering separating its handset business from its infrastructure business. When asked whether he would be interested in buying the infrastructure business, Mr. Svanberg said he would consider it if the opportunity arose but stressed that Ericsson generally is very cautious of large acquisitions.
"Any major merger is a significant disruption," he said. "Anyone that considers such major moves would have to see really significant gains. Because of our strong leading position we've had the ability to move on our own and be cautious on that kind of view . . . We would still have that cautious view on such opportunities."
Ericsson said fourth-quarter net profit fell 42% to 5.64 billion Swedish kronor from 9.73 billion kronor a year earlier. Sales rose slightly to 54.46 billion kronor from 54.21 billion kronor. Its operating margin was 14%, on par with its "mid-teen" forecast but down from the market-leading 22.5% in the fourth quarter of 2006.
