Ericsson share price up, plans to cut jobs as part of cost-saving plan

Ericsson, the world’s biggest maker of wireless networks, announced a plan to cut costs, including the reduction of workforce, as the telecom-equipment supplier aims for around 9 billion Swedish kronor in savings.

Stockholm-based Ericsson said the plan is expected to take full effect in 2017. Under the strategy the company will streamline its product portfolio and supply chain, reduce external costs and trim its workforce by an unknown number. Ericsson had 117 508 workers at the end of September.

The company also said it would focus on the increased market for services, software and cloud computing, as rivals like Nokia and Huawei are outgrowing Ericsson in sales.

The company, which supplies and services around 40% of all wireless networks in the world, predicted that the market for wireless networks will grow between 2% and 4% each year by 2017. Ericsson also projected annual growth of telecommunications services to be in the range of 4% and 6%, while yearly expansion of support solutions to hit between 7% and 9% through 2017. The predictions were lowered a bit from its previous forecast for the 2012-2016 period.

Ericsson said restructuring costs would range from 3 billion kronor to 4 billion kronor, in addition to the 2 billion kronor a year planned costs by 2017.

Operating costs are expected to hit their high this year but “we believe we can do more to increase efficiency and reduce cost” CFO Jan Frykhammer said.

“The key components of our profit improvement plan is to strengthen core business, build strength in targeted areas while at the same time continue to improve our cash flow” he added.

Ericssons employee-cut follows Nokias 25 000 job trim in an effort to rebound from years to losses. Nokias network unit stated adjusted gross margin of 39.1% for the third quarter with revenue increase of 13%.

In comparison Ericssons gross margin increased to 35.2% in the three months ended September 30, up from the 30.2% in the fourth quarter of 2011, the lowest since 1989, with a revenue increase of 8.7% to 57.6 billion kronor.

Ericsson lost 1.14% on Wednesday and closed at SEK 87.05 in Stockholm. On Thursday the stock gained 2.76% to trade at SEK 89.45, marking a one-year change of 9.49%. The company is valued at SEK 287.16 billion. According to the Financial Times, the 29 analysts offering 12-month price targets for Ericsson have a median target of SEK 92.50, with a high estimate of SEK 117.00 and a low estimate of SEK 74.00. The median estimate represents a 6.26% increase from the last close price of SEK 87.05.