Ericsson cuts 10k jobs as all segments decline

Ericsson has clocked declines in sales across networking, digital services, managed services, and media, but said it will expand its R&D investments.
Written by Corinne Reichert, Contributor

Networking giant Ericsson has published its full-year results for 2017, revealing that it cut 10,000 jobs during Q4 as sales declined across all segments.

"We continued to execute on efficiency improvements with a net reduction of 10,000 employees and external workforce in the quarter," Ericsson CEO Börje Ekholm said.

"To date, the annual run-rate effect of cost savings is approximately SEK 6 billion compared with the target of SEK 10 billion for mid-2018. The impact on the results in the quarter is limited, but will be increasingly visible in the first half 2018."

Restructuring charges for full-year 2018 are estimated to be between 5 billion and 7 billion Swedish Kronor (SEK).

Ekholm called it a "challenging" year, with net sales down from 222.6 billion SEK in 2016 to 201.3 billion SEK in 2017. Operating income likewise declined from 6.3 billion SEK to negative 38.1 billion SEK, while net income was down from 1.9 billion SEK to negative 35.1 billion SEK.

According to Ericsson, the drop in income was primarily due to the write-down of assets and customer project adjustments. For the future, Ekholm pointed towards continued spend on research and development (R&D) in 5G.

"We have developed and started to execute on a focused strategy, strengthening our R&D while at the same time introducing robust measures to reduce cost and commercial risk," the chief executive said.

"2017 was also the year when 5G went from vision to real business opportunities while we at the same time had good traction for our 4G portfolio ... we have continued to increase our R&D efforts to safeguard a future leading portfolio and to significantly improve our gross margin."

R&D expenses will therefore increase during 2018, primarily in Networks.

The announcement follows Ericsson raising $370 million in December to support its 5G, mobile, and Internet of Things (IoT) R&D activities.

With the NSA 5G NR specs approved by 3GPP in December, Ericsson immediately signalled an accelerated 5G deployment as a result, and completed several global 5G New Radio (5G NR) interoperability trials with Australian mobile carrier Telstra; United States carriers T-Mobile, Verizon, Sprint, and AT&T; Japanese carrier NTT DoCoMo; Korean carrier SK Telecom; and European carriers Vodafone and Orange.

In December alone, Ericsson was chosen to build the 5G networks of mobile carriers Deutsche Telekom and Verizon, while also running trials with AT&T in Texas and KDDI in Japan, and joining the Australian government's 5G working group.

During 2017, Ericsson made 128 billion SEK in sales from its Networks segment, down from 141 billion SEK in 2016: 38.8 billion SEK from North America; 29.2 billion SEK from Europe and Latin America; 22.5 billion SEK from South East Asia, Oceania, and India; 16 billion SEK from North East Asia; and 14 billion SEK from Middle East and Africa.

The decrease in its Networks business was attributed to lower telco investments in mobile broadband products and services, particularly across Thailand, Indonesia, and India; reduced LTE investments in Mainland China; and European providers focusing capex spends on fixed infrastructure rather than mobile broadband. Ericsson did refer to its "break-through contracts" with Verizon and Deutsche Telekom, however.

Digital Services pulled in 41 billion SEK in total, down from 45.3 billion SEK: 14.1 billion SEK from Europe and Latin America; 7.5 billion SEK from North America; 7.3 billion SEK from Middle East and Africa; 5.7 billion SEK from North East Asia; and 4.9 billion SEK from South East Asia, Oceania, and India.

The Digital Services decline was due to lower sales of legacy products and services across OSS, BSS, and packet core, Ericsson explained, as well as higher costs for ongoing large transformation projects.

Ericsson said Digital Services is growing across Australia, Singapore, and Indonesia, mainly in relation to core network solutions, however, and said that while the Chinese Radio Access Network (RAN) equipment market will continue declining due to reduced LTE investments, the North American RAN market has "positive momentum".

Managed Services made 24.5 billion SEK, down from 27.5 billion SEK due to the rescope of "certain large managed services networks contracts" in North America and the completion of 23 contracts, although the company said sales in managed services IT is growing. Of the total, 12.6 billion SEK came from Europe and Latin America; 3.7 billion SEK from Middle East and Africa; 3.3 billion SEK from North America; 3.2 billion SEK from South East Asia, Oceania, and India; and 1.8 billion SEK from North East Asia.

Ericsson's "Other" segment, which includes Media Solutions and Red Bee Media, made 7.9 billion SEK, down from 8.8 billion SEK. Despite this decline, Ericsson announced that it would be keeping global media services company Red Bee Media, and partnering with a private equity firm on its Media Solutions business, with One Equity Partners to become the majority owner of this.

"We have decided to partner with One Equity Partners (OEP) to further develop the Media Solutions business through retaining a 49 percent ownership stake. This allows us to capture the upside of the business while at the same time taking active part in the expected consolidation of the industry," Ericsson said.

"We have decided to keep Red Bee Media (former Broadcast and Media Services) as the bids received did not reflect the value of the business. We will develop the business as an independent entity within Ericsson, building on the improved operations."

"Our focus is now on improving and transforming Red Bee Media, in partnership with our customers, to enable our full potential as an independent and focused media services business," Red Bee Media CEO Steve Nylund added.

Ericsson's FY17 results announcement follows the company in January announcing a write-down of 14.2 billion SEK ($1.8 billion) following impairment testing and restated financials due to a new segment structure announced last year.

The write-down is being distributed via 6.7 billion SEK impairment of goodwill and 0.4 billion SEK impairment of intangible assets in its Digital Services segment; 6 billion SEK impairment of goodwill, 0.3 billion SEK of intangible assets, and 0.4 billion SEK of fixed assets across its Other segment; 0.3 billion SEK impairment of deferred costs related to the termination of "certain transformation activities" in its Managed Services segment; and 0.2 billion SEK impairment of "capitalised development expenses related to technologies that are no longer planned to be used" in its Networks segment.

A non-cash tax charge of 1 billion SEK was also announced due to a change in the United States corporate income tax rate.

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