Ericsson (NASDAQ: ERIC) will cut 2,200 jobs in Sweden, mainly in research and development (R&D) and its supply chain, as it seeks to slash costs and boost profitability. The vendor hinted at the job cuts in November, but at the time did not say how many employees would lose their jobs.
The Swedish vendor said the program will start in 2015 and run through 2017 globally. This year, the cost cutting will mainly target structural improvements in R&D, service delivery and supply globally to boost efficiency and growth in the company. Ericsson said the program includes both job cuts as well as savings in external costs across the company's operations around the world. The overall goal is to cut costs by around $1.05 billion (9 billion Swedish kronor) by 2017. Ericsson said it will book restructuring charges of between $349 million and $465 million during the next two years, in addition to its normal annual restructuring charges of around $233 million.
Ericsson said it will set up three global ICT centers with a common test and development strategy and methodology for R&D as part of the long-term structural improvements and efficiencies. The company also expects efficiencies in sales, general and administration, as well as reductions in external costs, for example related to the number of consultants and consolidation of the company's IT portfolio.
"Therefore, while we continue to have a very high pace of investments in R&D, there are now possibilities to realize efficiency gains or cost reductions," Ericsson CFO Jan Frykhammar told Reuters. He declined to say how many of the planned job cuts would be in R&D.
In a statement, Ericsson emphasized that this is a long-term initiative aimed at slashing operating expenses and the cost of sales across all of its operations, units and functions in order to fund growth in targeted areas.
In November, Ericsson said it would make the cuts as part of a larger strategic transformation toward software, media and working with customers that are not telecommunications carriers. Ericsson thinks that by 2020, 20 to 25 percent of its revenues will come from other types of customers than operators, up from 15 percent in 2014. The company is targeting non-carrier customers in the cloud, IP networks, TV and media and OSS/BSS segments.
The cuts also come at a time of flat sales and declining revenues from North America, Ericsson's largest market by sales, as carriers finish their macro LTE buildouts. In comparison, Ericsson rivals Nokia (NYSE:NOK) and Huawei are seeing stronger sales growth in North America. However, all network vendors are being caught up in the shift to Network Functions Virtualization (NFV) and Software-Defined Networking (SDN), as carriers look to cut costs of their own by moving away from proprietary hardware solutions and putting more of the network in the cloud so it can be controlled via software.
- see this release
- see this Bloomberg article
- see this Reuters article
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