Ericsson cuts 12,000 more jobs; Nokia posts better-than-expected results

LM Ericsson Telephone Co. said today that it would cut as many as 12,000 jobs, or 11% of its worldwide workforce, as part of a broad cost-cutting campaign.

The Stockholm-based telecommunications equipment maker said that net income in the first quarter dropped 90% and that overall sales are down 5% compared with the same period a year ago.

Meanwhile, competitor Nokia Corp. beat its own first-quarter expectations, which were lowered last month, by posting net profit today of $940 million, an increase of 15% over the $820 million reported in the first quarter of last year.

Ericsson posted a first-quarter pretax loss of $486 million, excluding a one-time gain of $544 million from the sale of Juniper Networks Inc. shares. In the first quarter of last year, Ericsson earned $603 million before taxes.

The first-quarter sales of $5.5 billion, compared with $5.8 billion in the year-earlier period, are in line with the revised outlook that Ericsson issued March 12 (see story).

“This is the most abrupt downturn ever seen in our industry, and as far as I know, it was not predicted by anyone. When will this end? We don’t know,” said Ericsson President and CEO Kurt Hellstrom in a teleconference with analysts and reporters.

Because of the slowdown in the mobile phone handset market, Ericsson said it plans to cut another 2,000 jobs in its Consumer Products division, which makes mobile phones. In January, the company announced that it would slash 9,800 jobs in the division. The number of employees in the division will be brought down to fewer than 5,000 by the end of this year.

In addition, to bring about annual cost savings of $1.9 billion beginning next year, Ericsson announced an “efficiency program” that it said could affect as many as 10,000 employees, more than half of whom would be outside Sweden.

As part of the program, Ericsson said it will “substantially reduce” activities in selected markets, including closing down offices and research and development facilities. The program also involves reducing the number of external consultants used and limiting expenses across all business divisions and corporate functions.

A spokesman for Ericsson declined to specify which offices would be closed, saying only that “certain locations have been identified.”

Ericsson said it plans to take a one-time restructuring charge in the second quarter of this year of about $1.4 billion.

For the second quarter, Ericsson predicted a loss, saying income before taxes “will not improve compared with the first quarter of 2001.” Noting the “unknown duration and magnitude” of the current market situation, Ericsson refrained from providing an outlook for the full year, saying only that it plans to “restore an operating margin of 10% as soon as possible, but not in 2001.”

At Espoo, Finland-based Nokia, revenue amounted to $7.2 billion, a 22% increase over the $5.8 billion for the same period last year, the company said in a statement. Earnings per share on a reported basis amounted to 18 cents, up from 17 cents for the year-earlier quarter.

Last month, Nokia issued a warning lowering its growth prediction for the quarter to 20% from an earlier estimate of 25% to 30%. At the same time, the company cited a slowdown in the global market for mobile phones, predicting that the industry will sell between 450 million and 500 million units this year, less than the 500 million to 550 million it had previously anticipated. Nokia repeated the lower estimate today.

At Nokia, the company’s networks division led performance for the quarter, reporting revenue of $1.8 billion, up 35% from $1.35 billion last year. Revenue at the more important Nokia Mobile Phones division, however, grew 20%, from $4.35 billion to $5.25 billion.

Citing more difficult market conditions, Nokia is predicting year-over-year revenue growth of about 20% companywide for the second quarter and for the entire year.

Related stories:

• Nokia phones won’t work on 3G networks, April 9, 2001
• Lotus to bundle Mobile Notes with Nokia and Ericsson, March 22, 2001
• Ericsson, IBM team on mobile financial services , Feb. 15, 2001