Ericsson Still Adjusting to Customer Cut-Backs

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Ericsson, the Swedish company that probably built, installed and services your neighborhood cell phone tower, is preparing for another round of global layoffs as demand for its high tech hardware dips.Profits in its fourth quarter of 2009, announced Monday, were down 92%, falling to $43.4 million, compared with the year-ago quarter.

Despite big equipment investments by Verizon, Sprint and Metro PCS in the U.S., telephone network operators in Central Europe, the Middle East and Africa are increasingly reluctant to make the capital investments that keep Ericsson's hardware business moving, said Ericsson's CEO, Hans Vestberg (pictured).

To rein in its costs, Ericsson will eliminate 1,500 jobs globally. This follows a cut of about 5,000 employees announced about a year ago. The company employed about 83,000 people at the end of 2009. Altogether it hopes to save $1.8 billion to $1.9 billion in the restructuring.

Ericsson is also finding that a shift from voice telephony to mobile broadband investments among its customers has not yet offset diminishing investments in older-generation technologies, such as the aging global mobile phone technology, GSM.

Even when its customers are ready to buy up new equipment, they're likely to shop around and consider offerings from lower-cost competitors, such as China's Huawei Technologies Co. Huawei is making inroads into Europe already, where it recently signed a deal with Net4Mobility, the joint venture by the Swedish companies Tele2 and Telenor.

Fortunately for Ericsson, there's a bit of bright news: The same cost-conscious networks wary of buying new equipment are thrilled to pay for Ericsson to manage their existing networks, thus keeping costs maintenance costs in check. The company landed a prime contract to manage Sprint's U.S. network in the second half of 2009.

Traffic growth, the addition of new subscriber, upgrades to a newer network technology, (LTE) in developed markets and 3G expansions in emerging markets may bode well for Ericsson longer term, RBC Capital Markets analyst Mark Sue wrote in a recent client note. But "at the moment, it's still an uncertain environment with carriers methodically monitoring" their capital expenditures, he said.

All told, Ericsson's Vestberg thinks his company still has a strong technology leadership position and expects 2010 will be a year of "healthy financial development." The veracity of that view will get its test before long. The next quarter is never far away.
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