Ericsson yesterday admitted some telecoms operators were postponing orders for mobile network equipment because of the global recession, as its first quarter earnings were hit by losses at its joint ventures that make handsets and microchips.
ST-Ericsson, Ericsson’s partnership with STMicroelectronics that manufactures semiconductors, announced plans to axe
15 per cent of its workforce after reporting a maiden net loss of $89m.
Ericsson’s earnings were also heavily dented by a pre-tax loss of SKr2.1bn ($262m) relating to Sony Ericsson, its joint venture with Sony that makes mobiles and is struggling partly because consumers are buying fewer phones in the downturn.
Ericsson, the world’s leading mobile network equipment maker, recorded net income of SKr1.7bn for the three months to March 31, down 35 per cent on the same period last year. Revenue rose 12 per cent to SKr49.6bn in the first quarter, boosted by the weak Swedish krona.
Ericsson’s shares closed down 8.03 per cent at SKr71 after analysts said the Swedish company was striking a more cautious tone about sales prospects with fixed-line and mobile operators.
Carl-Henric Svanberg, Ericsson’s chief executive, denied any change of tone, and stressed the recession had so far had a limited impact on the mobile network market. But he added: “We have seen operators – in a few markets where local currencies have depreciated dramatically – postpone investments.”
He pointed to Russia and Ukraine, where some mobile operators are cutting their capital spending sharply.
Several European and US telecoms companies, such as France Telecom and AT&T, have announced plans to cut capital spending this year, although Chinese mobile operators are proceeding with large investments.
Ericsson’s basic earnings per share were SKr0.54, down 35 per cent, and the company’s cash flow performance was weak.
It recorded a cash outflow from operating activities of SKr2.9bn in the first quarter, partly because of a SKr1.5bn payment into its pension scheme.
The company’s net cash position deteriorated from SKr34.7bn at December 31 to SKr22.9bn at March 31, partly because of a $1.1bn payment to establish ST-Ericsson.
The ST-Ericsson joint venture was created in February in an effort to challenge Qualcomm’s position as the world’s leading supplier of microchips for handsets.
Yesterday it reported revenue of $391m for the two months to March 28, its first period of trading, and an operating loss of $98m, because of reduced demand for semiconductors used in mobiles. ST-Ericsson outlined plans to cut 1,200 jobs, in a restructuring programme that will provide annual savings of $230m.
“The job cuts are a reflection of the lower sales volumes we are seeing and the pressure on pricing,” said Alain Dutheil, chief executive of ST-Ericsson. “There is an urgent need to react with speed.”
ST-Ericsson is aiming to break even in the second quarter of 2010. Although Mr Dutheil said he did not anticipate seeking further funding from Ericsson and ST Microelectronics, there are no limits on the cash call he could make on the parent companies if trading does not improve.
Mr Svanberg did not rule out the possibility of Ericsson providing a capital injection to Sony Ericsson later this year, given the joint venture is burning up cash.
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