Ericsson is consulting with workers unions and representatives over the lay off of around 1,000 staff from its modems business after announcing it will quit the sector in favour of an increased focus on its radio networks unit.
Ericsson CEO, Hans Vestberg
The Swedish infrastructure vendor said it has an immediate need to add around 500 people to its networks research and development (R&D) to capture opportunities in areas including small cells, energy efficiency and machine to machine (M2M) communications. Those staff will come from the LTE thin modem business Ericsson took control of when it ended a joint venture with STMicroelectronics in 2013. The unit currently comprises 1,582 employees in total at sites in Sweden, India, Germany, China and Finland.
Ericsson president and CEO, Hans Vestberg, said the successful development of the company's M7450 modem completes the strategy for the modems business announced when the STMicroelectronics joint venture was dissolved. "However, given the modem market dynamics and the development in small cells and indoor coverage markets, we believe resource re-allocation is more beneficial for the Ericsson Group and our customers," he explained, referring to a drop in the addressable market for thin modems and an increase in competition in the sector that has eroded prices.
The company plans to shutter its thin modems business during the fourth calendar quarter of 2014, and said the move will deliver significant cost reductions in the first half of 2015.
In Ericsson's most recent earnings statement, Vestberg revealed the company pumped SEK1.2 billion (€130 million/$168 million) into the modems business during the first half of 2014--the bulk of which was on R&D. At the time, the CEO predicted the unit would begin generating sales by the year-end once the first smartphones and data devices featuring the M7450 modem began shipping.
The company's networks business increased its gross margin during the second quarter of 2014 as the business mix improved inline with an increase in mobile broadband capacity project wins, and "higher recurring IPR revenues and efficiency improvements," Vestberg stated.
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