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Ericsson revenues fall by 32 percent
Friday, July 19 2002
by Ciaran Buckley


Despite savage cutbacks, Ericsson has announced more losses in its second
quarter, as the firm hints at new cost cutting measures. 





Ericsson reported net losses of SEK3.5 billion (EUR377m) in Q2 2002, an
improvement from the loss of SEK14.1 billion in the same quarter last year and
SEK5.4 billion (EUR582m) in the first quarter.  Diluted losses per share
amounted to SEK0.34, an improvement from the SEK1.81 figure the company provided
a year ago. 



Although sales have increased by 4 percent to SEK38.5 billion since the last
quarter, they are down 39 percent from the same quarter last year, when sales hit
SEK62.78 billion.





Some of the company's loss can be attributed to a restructuring charge of SEK1.5
billion during the quarter, which was much lower than the SEK15 billion charge
the firm booked in the same quarter last year. 



In another important move, Ericsson said it would issue about eight billion new
shares to raise SEK30 billion (EUR3.25 billion) in new financing. The shares will
be priced at SEK3.80, a discount of nearly 75 percent to Thursday's closing price
in Stockholm.  The world's number on producer of mobile network equipment said
it will use the money to repay debt and to fund its restructuring activities.
Total restructuring costs for 2002 and 2003 will be SEK17.5 billion, including
SEK7 billion for new measures, Ericsson said.



With regard to job cuts and cost-cutting in general, Ericsson claims that its
cost reduction program is ahead of schedule and the company hopes to break even
by the first quarter of 2003, assuming that sales are around SEK120 billion. 



"With intensified cost reductions, a stronger balance sheet and a premier
customer base, we are confident that we have the right strategy to restore
profitability and reinforce our leadership in this long-term growth industry,"
said Hellstrom in a statement. Hellstrom also talked about continuing to reduce
cost to reach breakeven status, suggesting that job cuts could be on the way. 



Indeed the company said in its results that most of its previously announced job
cuts, under the "Efficiency Program," were fully implemented in Q1, saving the
firm SEK20 billion on an annual basis.  "Cost reduction measures targeting a
further SEK20 billion of annual savings are planned for implementation by the
first quarter of 2003," Ericsson said. Another SEK10 billion in savings is
planned for later in that year. 



So far, the company has shown it is certainly willing to cut staff levels as the
market deteriorates, slashing thousands of jobs worldwide over the last two
years. The company only employs 76,000 people worldwide, whereas it employed
94,000 twelve months ago. Many of cuts came in April and were followed in May by
an announcement that the company would cut eight percent of its Irish staff,
seeking 150 voluntary redundancies. This has reduced Ericsson's workforce in
Ireland to around 1,700. 



Those cuts came in Ericsson Systems Expertise Limited, the Irish research and
development centre for the Swedish supplier of mobile telecom systems. The
company's Irish R&D operations employ just over 1,000 people currently and the
unit is responsible for what the firm describes as "key software development
activities" in the 3G Radio domain, principally relating to Radio Access and
Control and Network Management systems. 



An Ericsson spokesperson was unwilling to comment on the possibility of future
jobs cuts in Ireland. "We are not in a position to say whether there will
further staff losses in Ireland," she said. 



Ericsson cut its workforce globally by 13,000 in 2001, including cuts connected
to the transfer of employees to Sony Ericsson, its handset joint venture with
Sony. 



In its market outlook, Ericsson reported that it expected the mobile systems
market to decline by 15 percent, whereas it only predicted a decline of 10
percent in its first quarter results. The mobile systems market is important to
the future of its Irish operations. 





Additionally, the company reported a dull future for mobile handset sales as
well. Ericsson had previously predicted that between 400 million and 420 million
handsets would be sold worldwide this year, but now believe that sales will be as
low as last year's figures of 390 million. That figure is around 10 million less
than competitors Motorola and Nokia are forecasting.