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February 1, 2008
Stockhom, Sweden - Wireless equipment maker LM Ericsson AB reported a sharp drop in fourth-quarter net profits and said Friday it would lay off around 1,000 employees in Sweden because of costs cuts.
At a news conference later Friday, Ericsson's CEO Carl-Henric Svanberg said job-cuts would also be planned worldwide to reach its annual cost cut goal of $629 million.
"Totally in the world ... As a rule of thumb, I'm sure that a thousand (people) per billion is probably in the neighborhood of where it's going to end up," Svanberg said without specifying the comment and adding that such a head count would include consultants, suppliers and temporary workers. All parts of Ericsson's business would be affected by the savings, he said.
"What we're doing is to adjust to a slower market," Svanberg said. "We're taking action to safeguard our competitive position."
One-time costs are expected to reach around 4 billion kronor ($629 million), but will be taken "as each activity is decided."
The full effect of the move is expected in 2009, it said, and most of the layoffs in Sweden would be made through voluntary programs "as far as possible."
"Sometimes voluntary doesn't work," Svanberg said, "but that's how we want to approach it."
The company also said that although industry fundamentals and consumer behavior back a positive longer-term outlook, "we find it prudent to plan for a flattish mobile infrastructure market" in 2008 on the back of slowing market growth in the past year.
Operating margin for the quarter fell to 14 percent, from a previous 22.5 percent in the same three months in 2006.
The company blamed it mainly on tougher times in its networks business, where rapid build-outs of lower margin projects in emerging markets is pressuring profitability.
A fall in network expansions and upgrades in its mature markets have also declined, leading to lower margins, it said.
Fourth-quarter net profit fell 42 percent to 5.6 billion kronor ($880 billion), down sharply from 9.73 billion kronor in the year-ago period.
For the full year 2007, net profit dropped around 16 percent to 22.1 billion kronor ($3.5 billion), compared with 26.25 billion in 2006.
Despite the weaker earnings, the company's board said it would propose a dividend of 8 cents per share to the annual general meeting.
Ericsson's year-end result and future forecast have been heavily anticipated by market watchers ever since the Stockholm-based company in October shocked investors with a hefty profit warning and a surprise cut in its 2007 outlook -- forcing its chief financial officer to step down.
Sales for the three-month period ended Dec. 31 remained almost unchanged at 54.5 billion kronor ($8.57 billion) from 54.2 billion kronor in the same period the year before.
Ericsson shares fell 2.5 percent to $2.19 in Stockholm trading.
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