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Ericsson Soars on Strong Q4, Outlook

Ericsson AB (Nasdaq: ERIC) gave the telecom equipment sector a much needed boost Wednesday by reporting strong fourth-quarter results and remaining positive about the resilience of the mobile infrastructure sector in the coming year.

That didn't stop it announcing further restructuring measures, though, as it prepares to weather the global economic storm: The vendor is cutting 5,000 staff, including 1,000 in Sweden.

The better-than-expected fourth-quarter numbers, helped by the positive impact of foreign currency exchanges (the Swedish kronor is currently weak against the U.S. dollar and the euro), and the resilient outlook pushed Ericsson's share price up by 12.5 percent on the Stockholm exchange Wednesday to SEK63.00.

Financial details and cost cuts
Ericsson reported fourth-quarter revenues of SEK67 billion (US$8 billion), up 23 percent from a year earlier, and net income of SEK3.9 billion ($467 million), down 31 percent from a year ago.

Even without the positive currency exchange impact, Ericsson's management noted, the fourth quarter was very strong in terms of growth and business activity.

The net income was hit by fourth-quarter restructuring charges related to the 2008 cost-cutting measures announced last February, and also by losses at handset firm Sony Ericsson Mobile Communications . (See The Cellphone Slide, Sony Ericsson Reports Q4, and Ericsson Cuts Jobs as H2 Bites.)

For the full year 2008, Ericsson reported revenues of SEK208.9 billion ($25 billion), up 11 percent compared with 2007, and net income of SEK11.3 billion ($1.35 billion), down 48 percent from 2007. The company said net income was "impacted by restructuring charges and a dramatic drop in the contribution from Sony Ericsson." Full year restructuring charges totaled SEK7.6 billion ($909 million), including a share of Sony Ericsson's charges.

Ericsson didn't provide a financial forecast for 2009 but noted that, while the global mobile handset business has been hit by the economic downturn as more people hang on to their current phones and delay upgrading to new devices, the use of mobile services is holding up, with the use of mobile broadband services growing.

As a result, Ericsson hasn't experienced much impact on its mobile infrastructure business so far, though CEO Carl-Henric Svanberg noted during a Webcast press conference this morning that it's "unreasonable to think the sector won't be affected" by the global economic situation during 2009.

So as a precautionary measure, and to make the company more efficient and competitive, a new restructuring program is being implemented. Ericsson is reducing its global staff numbers by 5,000 (about the same as in 2008) to around 73,750, a move that will cut its annual operating costs by SEK10 billion ($1.2 billion) by the middle of 2010. Ericsson expects its restructuring charges to be between SEK6 billion and SEK7 billion ($719 million and $838 million) this year.

The staff cuts, of which 1,000 will be in Sweden, will come from a reduction in the number of consultants and other temporary staff, the consolidation of R&D capabilities, and some general layoffs. All parts of the company will be affected, noted the CEO.

"We are preparing for tougher times. Even though our sector won't be hit as hard as others, we still have to defend our margins and extend our leadership. This is a great time to advance our position," stated Svanberg.

"We have to fight every day" against industry rivals, noted the CEO, especially against "fast-growing Chinese competition," though he noted that one "grand" old rival had just gone bankrupt. (See Huawei Predicts 29% Growth in 2009, Huawei, ZTE Predict 2009 Growth, and Nortel Files for Bankruptcy Protection.)

"We can do the same job with fewer people" due to IT and other technology efficiencies, and Ericsson needs to take every decision it can to secure its future, the CEO added. "Look at today's world," added Svanberg, "Nortel Networks Ltd. is bankrupt, Motorola Inc. (NYSE: MOT) is on its way out..."

There's nothing like a touch of compassion to start the day!

Financially, Ericsson appears to be relatively secure. The company says it has a strong balance sheet with plenty of cash to see it through the global downturn. It has cash, cash equivalents, and short-term investments of SEK75 billion ($9 billion) and SEK30.5 billion ($3.65 billion) in total debt, of which SEK5.5 billion ($659 million) is due to be paid in the coming year.

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DCITDave 12/5/2012 | 4:13:36 PM
re: Ericsson Soars on Strong Q4, Outlook Ericsson makes a lot of happy talk and then cuts 5k jobs, mostly in R&D. I wonder where they'll fall behind. Does anyone think Ericsson will be able to slash R&D that fast without missing a step, or having to pay too much for someone else's technology down the road?
DCITDave 12/5/2012 | 4:13:36 PM
re: Ericsson Soars on Strong Q4, Outlook Thanks for the link, Fierce:
http://www.fiercetelecom.com/s...
DCITDave 12/5/2012 | 4:13:36 PM
re: Ericsson Soars on Strong Q4, Outlook re: "there are a lot of slow learners out there who are still trying to figure out what that rattling sound is"

That was me fishing my flask out of the bottom drawer of my filing cabinet.

ph
Stevery 12/5/2012 | 4:13:36 PM
re: Ericsson Soars on Strong Q4, Outlook Does anyone think Ericsson will be able to slash R&D that fast without missing a step, or having to pay too much for someone else's technology down the road?

I doubt they'll have to pay too much for anything.
Can you say Global Asset Deflation?

Tech is going to be verrry cheap. God help the current crop of startups, because there is still a lot of tough sledding ahead. (And many VCs are going to be toast, more so than 2001. You have been following the walkaways from the Great 2008 Capital Call, right?)

No doubt, you are going to hear all sorts of crap about how now is a great time to invest, people are cheap, software is cheap, hardware is cheap blah blah blah. But there has been an earthquake in the market, and there are a lot of slow learners out there who are still trying to figure out what that rattling sound is.
jepovic 12/5/2012 | 4:13:35 PM
re: Ericsson Soars on Strong Q4, Outlook 5000 people. Let's say 3000 in r&d - that's 10-20% of their R&D budget? Someone who gets paid for it can do the numbers. Anyway, my feeling is that this is a lot less than the global R&D investments in telecom are shrinking currently. Certainly NokiaSiemens, Alcalu, Nortel and others are cutting more.

Thus, even though Ericsson are cutting down, they are probably increasing their share of the global R&D. So who says they'll fall behind?

Ericsson's market share in wireless infra has increased steadily for probably 20 years. They know the business better than anyone. Just a couple of bold - and in retrospect correct - moves:
* They pulled out early from TDMA
* They pulled out early from CDMA
* They merged/sold their handset business to sony.
* They didn't buy Lucent or Nortel

In tough times, customers tend to opt for safe bets - not startups. So I'd bet my money on Ericsson continuing to dominate wireless.
bollocks187 12/5/2012 | 4:13:35 PM
re: Ericsson Soars on Strong Q4, Outlook They cannot get a "rise" as they are impotent right now - needs something to get them going - perhaps OBAMA can fund them with govt money.

1) No money from VC to fund them
2) No customers buying new products
3) No one to buy them
4) No IPO market
5) Lots of lay-offs means cheaper priced engineers
6) No body on light reading message boards, except some dumb fxxxxx like me - lol
7) Everyone is bloody hidding right now trying to survive.


trzwuip 12/5/2012 | 4:13:31 PM
re: Ericsson Soars on Strong Q4, Outlook Huawei still running strong and continue to invest in R&D more than anyother major supplier in the market today. It is their time and they will continue to drive down the costs and improve the solutions. We should see more going down the Nortel road in 2009 than we expect.

At least my manuals from Huawei are in engrilish.
abashford 12/5/2012 | 4:13:30 PM
re: Ericsson Soars on Strong Q4, Outlook "That was me fishing my flask out of the bottom drawer of my filing cabinet."

Thanks for confirming... I always thought there was a lot of that going on at LR. ;)
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