Fixed Mobile Convergence

Ericsson has certainly had more fruitful years and the company’s latest move to cut costs won’t help its perception in the marketplace. According to a post in The New York Times, Ericsson (News - Alert) has announced plans to cut 1,500 jobs this year. These cuts are on top of the 5,000 cut last year amidst an 82 percent drop in profit.

The Stockholm-based company reported a 13 percent fall in sales in the three months through December. A substantial drop is profits and revenue has put the company in a precarious state, especially as slumps in Central Europe, Africa and the Middle East have greatly impacted performance.

“Investors had higher expectations and those were not met today,” said Mats Nystrom, an analyst with SEB Enskilda Bank in Stockholm, in The Times. “Network equipment sales are clearly in a decline, and I expect that decline to continue for another one or two quarters at the least. There is also terrible pricing pressure.”

At the end of December, the company still employed 82,500. Now, facing stiff competition from such competitors as Huawei and ZTE, Ericsson is struggling to maintain market share. Some of the cuts are scheduled to be made at a factory in Galve, Sweden, while others may come from elsewhere.

While Ericsson has announced its intention to trim its budget by eliminating the equivalent of 8 percent of sales in expenditures, the company has also set out to spend roughly 15 percent of its sales on research and development.

Ericsson has stated that some of the spending will go toward the newly purchased North American GSM network, which the company purchased in November from Nortel (News - Alert) for $70 million.

“From a strategic perspective, the R.&D. investment makes sense,” Mr. Nystrom said. “But it probably was not what the market wanted to hear.”

One positive side to Ericsson’s efforts has been the gains the company has experienced on its professional services side, including the management of global operators’ wireless networks. Such services account for about one fourth of the company’s sales. Ericsson also signed a seven-year deal to manage Sprint’s network, which could be worth as much as $5 billion.

Overall, Ericsson continues to struggle as the sales of 3G networks have not been strong enough to offset the decline in GSM technology. In addition, equipment sales fell 16 percent. Sony Ericsson (News - Alert) and ST-Ericsson have both been money-losing ventures that show now signs of producing a profit.

As for looking ahead, the news is still grim as the company reported painful losses for the previous year. The job losses shouldn’t be surprising as the company has a lot of work to do to become more viable in the industry.