Cash-starved Swedish telecom giant Ericsson said April 22 it would cut 20,000 jobs and undertake a $2.9 billion rights issue as it struggles with a global communications market unable to lift itself out of the doldrums.
Ericsson's woes look set to continue for the remainder of the year – at least.
It plans to cut 10,000 jobs this year and a further 10,000 next year as part of a new efficiency program, following 22,000 job cuts last year.
Ericsson had 107,000 a year ago and aims to reach 65,000 by the end of 2003.
The company's Baltic offices, however, seem to be bucking the telecom glut, which has led to sweeping job cuts around the world.
None of the Ericsson offices here expect layoffs.
"The global telecom market is undergoing a downturn, but it is still booming in Lithuania," Bengt Forss, president of Lithuanian subsidiary Ericsson Lietuva, told the newspaper Verslos Zhinios. "So unlike Ericsson's other markets, the situation in Lithuania is not dramatic."
Ericsson Lietuva posted a 28 percent increase in sales last year to 104.6 million litas ($26.15 million), Forss said.
Ericsson Latvija President Haken Johansson said mobile phone sales in the Baltics continued to climb steeply.
"Market penetration is increasing here," he said.
But not all sectors of the Baltic telecommunication market have been immune from the downturn.
Mobile phone producer Elco-teq's Estonia plant announced earlier this month that it would lay off 270 workers because of a drop in market demand. The company shed 600 jobs last year when it lost a contract to produce phones for Ericsson.
Ericsson's April 22 announcement was the latest in a run of bad news for telecom shares.
Telecom issues were under the hammer after Ericsson posted a net loss of 3.7 billion kronor ($357.49 million) in the first quarter and warned it did not expect to return to profit until sometime next year, as the industry increasingly abandon hopes of a recovery in 2002.
Finnish rival Nokia, the world's leading mobile phone maker, stunned markets last week when it sharply downgraded its forecast for sales this year.
Japan's top telecom firm NTT said it would cut 17,000 jobs and reduce capital investment by $3 billion in three years.
According to the German weekly newsmagazine Focus, electronics giant Siemens will cut an additional 5,000 jobs at its information and communication networks division because of its failure to return to profit.
Ericsson's share price took a beating in Stockholm following the news, plummeting 26 percent to 26.60 kronor, while rival Nokia shed 2.7 percent to 19.04 euros ($16.85) in Helsinki.
In London, mobile phone operator mm02 dropped 5.1 percent to £0.51 ($0.72), Vodafone gave up 3 percent to £1.13 and BT Group eased 2 percent to 265.25 euros.
In Paris, telecom equipment maker Alcatel slumped 5.7 percent to 14.52 euros, while Siemens gave up 4.9 percent to 64.58 euros.
Analyst Emmanuel Bousquet at Credit Lyonnais Securities in London told AFP the low share prices for telecom stocks were a more accurate reflection of the industry's worth than the higher prices of 18 months ago.
"We are now beginning to see levels that reflect the real telecom sector," he said.
The group said it had also planned 10 billion kronor in cost cuts in 2002 and a further 10 billion kronor in 2003, as well as 8.5 billion kronor in restructuring costs this year and 2 billion kronor next year.
Coupled with previously announced restructuring programs, Ericsson expects savings of 28 billion kronor this year, 38 billion kronor next year and a full 40 billion kronor from 2004.
The company, which has been trying to improve its finances for the past year, said that while cash flow in the first quarter had improved from a negative 18.1 billion kronor a year ago to a negative 4.1 billion kronor, it was still in need of funds to strengthen its "financial and strategic position and flexibility".
It said it would therefore offer new shares worth 30 billion kronor to existing shareholders.
The group's two largest stockholders - Investor, the holding group of Sweden's powerful Wallenberg family financial empire, and Industrivaerden - said April 22 they would fully subscribe to the offering.
Ericsson CEO Kurt Hellstroem said the first quarter had been "very challenging."
"Many operators have recently lowered investment plans further. As sales will be lower than anticipated, with ongoing aggressive cost-cutting we plan to return to profit at some point in 2003," he said in a statement.
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