Report: Ericsson division to cut purchasing expenses by 50%

Ericsson's Networks division is going to have to cut its purchasing costs by 50 percent over the next five years to keep pace in the intensely competitive network gear market--particularly with Chinese vendors Huawei and ZTE--according to an article in the Swedish newspaper Ny Teknik reported by Reuters.

The newspaper, which cited an internal Ericsson strategy document, said that the company laid out the stakes fairly clearly: Ericsson has to combat pricing pressure from Huawei and ZTE. "For purchasing, that means halving costs over five years," the paper reported the memo as saying. Ericsson's Networks division makes up about two-thirds of the company's sales.

Cutting purchasing costs could mean that Ericsson would use more standard components, that each equipment component performs more functions or can operate on different radio frequencies, and that the company would continue to move from hardware to software solutions.

Ericsson clearly leads its rivals in terms of market share, but both Huawei and ZTE have nearly doubled their market share during the past year, according to Dell'Oro.

That Ericsson would have to cut costs is not surprising, said Peter Jarich, a wireless infrastructure analyst at Current Analysis. In fact, he said the company is already moving in that direction by combining base station and radio network controller solutions.

"They really are doing a whole bunch of stuff that is moving in that direction," he told FierceWireless. "Is it 50 percent? I don't know. Does it need to be 50 percent? I don't know. But they are going pretty aggressive on cost cutting."

An Ericsson spokesman declined to comment on the report.

For more:
- see this Reuters article

Related Articles:
Huawei denies plans for Alca-Lu purchase
Dell'Oro: Ericsson outpaces rivals
Ericsson posts lower profit, sees weak economy continuing