Wireless equipment maker LM Ericsson plans to cut 5,000 jobs after reporting profits dropped 31 per cent in the fourth quarter, reflecting restructuring charges and weaker handset sales.
Still, Ericsson said Wednesday its core infrastructure business was not yet feeling the effects of the global economic downturn, and its better-than-expected report sent shares up more than 10 per cent to 62 kronor on the Stockholm market.
Net profit in the quarter fell to 3.9 billion kronor, or US$465 million, from 5.6 billion a year earlier.
Ericsson said the results included about three billion kronor in restructuring charges and "a dramatic drop" in the contribution from its handset unit, Sony Ericsson.
The joint venture with Japan's Sony last week said it had swung to a fourth-quarter loss of about US$243 million.
Sales received a boost from a weaker krona, rising 23 per cent to 67 billion kronor, from 54.5 billion kronor a year earlier.
SEB Enskilda analyst Mats Nystrom said the strong sales were the biggest surprise in what he called a "really good quarter" for Ericsson.
The world's leading maker of mobile broadband infrastructure said it released the fourth-quarter report a week ahead of schedule because the financial results exceeded market expectations.
Chief executive Carl-Henric Svanberg said the economic recession spreading around the world had not yet hit the network industry. Telecom operators, who build their networks with equipment from Ericsson and its competitors, still have healthy finances, he said.
"It remains, however, difficult to more precisely predict to what extent consumer telecom spending will be affected and how operators will act," Svanberg added. "To date, our infrastructure business is hardly impacted at all, but it would be unreasonable to think that this would be the case also throughout 2009."
Nortel Networks Corp. (TSX:NT), once one of Ericsson's biggest competitors, filed for bankruptcy protection in Canada and the U.S. last week, becoming the first major technology company to take that step in the economic downturn.
Ericsson said it needs to widen its savings program to stay competitive. That would mean cutting 5,000 jobs, or more than six per cent of the company's 79,000-strong workforce, Ericsson said.
The Stockholm-based company said it expected restructuring charges of between six billion and seven billion kronor, yielding annual savings of around 10 billion kronor by the second half of the year.
In a webcast news conference with analysts and journalists, Svanberg said "we're doing this of course because of the uncertainty in the market."
Ericsson said full-year profits fell 48 per cent to 11.3 billion kronor in 2008, from 21.8 billion kronor the previous year. Sales grew 11 per cent to 209 billion kronor.
Ericsson has a presence around the world, including Canada, where the company operates a research business in Montreal and supplies network equipment to Canadian wireless carriers such as Rogers Communications (TSX:RCI.B)
