Ericsson will cut 1,550 staff across its Swedish operations less than two weeks after reporting a 43 per cent plunge in profit in its third quarter. The headcount reduction, which amounts to almost 9 per cent of Ericsson's Swedish workforce, will be focused on it networks division.
"We must ensure that we can continue to execute on our strategy to maintain our market leadership, invest in R&D and meet our customers' needs," Tomas Qvist, head of Ericsson's human resources in Sweden, said in a statement. "To secure this we need to focus on reducing cost, driving commercial excellence and operational effectiveness."
The company has stuck to its forecast for total restructuring costs this year of around €470 million, a spokeswoman told Reuters. This move will shock Swedish residents, given that the company employs over 17,000 workers in the country and is seen in the country a symbol of international success, according to the Financial Times.
Total sales in the third quarter slipped 1.7 per cent. Ericsson's highly watched gross margin dropped to 30.4 percent, down from 35 percent in the year-ago period. Analysts polled by both Dow Jones Newswires and Bloomberg expected a gross margin of around 32 percent for the period.
"Something big was bound to happen in the fourth quarter," Lars Soederfjell, an analyst at Aalandsbanken in Stockholm, told Bloomberg. "If you look at network margins, they were down to 5 per cent in the third quarter and they have a target of returning to double-digit margins so in order to get there without much top-line growth in the near term, they need to take steps."
Ericsson, which in March forecast that the global telecoms equipment market would grow at a compound annual growth rate of between 2 per cent and 8 per cent through 2014, revised this forecast to growth of between 3 per cent to 5 per cent a year through 2015.
Of note, Ericsson's revenue per employee last quarter was 17 per cent higher than struggling Alcatel-Lucent's and at a similar level to Nokia Siemens Networks. Selling and administrative expenses, at 11 per cent of its sales, also beat Alcatel-Lucent's 16 per cent.
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- see this Bloomberg article
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