Ericsson sees profits plummet in 2009

Ericsson sees profits plummet in 2009

Swedish vendor Ericsson turned in a gloomy set of results on Monday, with figures weighed on by heavy restructuring costs and the less than stellar performance of its joint venture businesses.

Net income for the fourth quarter of 2009 was down 82 per cent year on year to SEK700m (€69m), from SEK4.1bn in the same period last year. Profit was also down 65 per cent year on year for the full year 2009 to SEK4.1bn from SEL11.7bn in 2008.

Sales were also hit, down 13 per cent year on year for the fourth quarter to SEK58.3bn in 2009, and flat year on year for the full year 2009 at SEK206.5bn.

Over 2009 Ericsson initiated cost reduction activities targeting annual savings of SEK10bn from the second half of 2010 split equally between cost of sales and operating expenses. The anticipated 5,000 reduction in headcount has already been exceeded and is now estimated to reach approximately 6,500.But Ericsson is taking on staff almost as quickly as it is getting rid of them. Managed services, which are becoming a major part of the company’s business, typically involve the transfer of staff to Ericsson. In December the firm won a contract with Romanian fixed carrier Romtelecom which involves Ericsson taking on 400 workers from the Romanian telco and Ericsson’s other 2009 wins include Du, O2, Zain, Vodafone, 3UK, T-Mobile and Sprint. The last of these saw Ericsson take on 6,000 Sprint employees as part of the deal.

In the fourth quarter, restructuring charges, excluding joint ventures, amounted to SEK4.3 bn. The company also took on operating expenses from the acquired Nortel GSM business, which it snapped up for $70m.

Commenting on the results, newly installed CEO Hans Vestberg said the shift from voice telephony to mobile broadband investments continues, following an anticipated decline in GSM sales, which is not yet offset by the growth in mobile broadband and investments in next-generation IP networks.

Last week, Ericsson’s joint venture units hinted at disappointing results for the Swedish firm. Handset venture Sony Ericsson, to be fair, is moving in the right direction. Fourth quarter loss shrank to €167m in 2009, from €187m in 2008, but sales also shrank from €2.9bn in the fourth quarter of 2008 to €1.7bn in 2009.

But over at joint venture chip shop ST-Ericsson, things aren’t looking so rosy. Net loss rose to $125m in the fourth quarter of 2009 from $112m in the third quarter of the same year. Revenues also fell year on year from $746 in the fourth quarter of 2008 to $740 in 2009, but were up sequentially in the fourth quarter from $728m in the third quarter 2009.

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