The full impact of the credit crunch started to become clear on Wednesday as the first of the big telecoms equipment vendors reported its financial results.
Swedish kit maker Ericsson actually performed better than expected, despite the fact that full year net income plummeted some 48 per cent to SEK11.3bn. Earnings in the fourth quarter of 2008 took a negative hit of 31 per cent, dropping to SEK3.9bn.
But the company pushed revenues for the year up by 11 per cent to SEK208.9bn, and also recorded a sales increase of 23 per cent in the fourth quarter.
Unfortunately there was bad news to come, with a raft of cost reductions resulting in a loss of 5,000 jobs. Many of these will be consultants and other temporary staff, as well as the consolidation of some R&D sites. Ericsson said about 1,000 of these job cuts would be in Sweden, primarily in Stockholm.
These latest cutbacks are on top of a cost reduction plan of SEK4bn in annual savings that was announced in February of last year. Restructuring charges to date have amounted to SEK6.7bn, which Ericsson reckons has resulted in annual savings of approximately SEK6.5bn from year-end 2008. These latest cuts, which will take restructuring charges closer to SEK7bn, are expected to deliver annual savings of SEK10bn by the second half of 2010, with an equal split between cost of sales and operating expenses.
“We are leveraging synergies between our different technologies, in-house and acquired, and taking advantage of opportunities in the transformation to all-IP. We will reduce the number of software platforms and increase the re-use of hardware. We will also move certain activities to low-cost countries,” said Carl-Henric Svanberg, president and CEO of Ericsson.
Last week, Japanese-Swedish joint venture Sony Ericsson reported a net loss of Eur73m for 2008, down from a profit of Eur1.1bn in the previous year.
Handset shipments spiralled down from 103.4 million in 2007 to 96.6 million in 2008, as the credit crunch hit home and consumer demand for new devices dried up.