ERIC Ericsson

By Matthias Verbergt 

STOCKHOLM--Swedish telecommunications-equipment maker Ericsson AB announced further cost reductions and job cuts on Tuesday after reporting a 24% drop in second-quarter net profit, as it faces stiff competition and continued weak product demand in most of its markets.

The company said it aims to double its operational savings by 2017 by reducing research and development costs and capturing efficiency gains from a new company structure, as well as from its partnership with Cisco Systems Inc.

The firm expects the cuts to lower its annual operating expenses, excluding restructuring charges, to 53 billion Swedish kronor ($6.20 billion) in a year's time, compared with 63 billion kronor for the full year of 2014. The operation comes in addition to a continuing efficiency program of 9 billion kronor, which Ericsson said is going according to plan.

The restructuring comes as Ericsson, one of the world's largest telecom-gear providers, faces competition from its Nordic rival Nokia Corp. and new operators such as Huawei Technologies Co., the rapidly growing Chinese network equipment maker that has been offering innovative products at competitive prices.

Ericsson, whose share price has lost about a third of its value over the past year, on Tuesday reported a second-quarter net profit of 1.59 billion Swedish kronor, down from 2.09 billion kronor a year earlier. Revenue for the period amounted to 54.11 billion kronor, down 11% compared with 60.67 billion kronor in the year-earlier period.

Sales of wireless network gear--Ericsson's core business--were mostly hit, as many telecom operators have completed large last-generation broadband projects, while several emerging markets suffered from slow economic growth.

"We saw that the networks business is coming down in volume and we have to adjust the cost structure of the company," Ericsson Chief Executive Hans Vestberg said in an interview.

Ericsson is betting on the development of fifth-generation wireless networks, but analysts say it might take years before telecom providers start upgrading their networks to 5G.

Mr. Vestberg said the cost cuts will result in additional layoffs among its 166,500 world-wide staff, without specifying where and how many. In the first half of this year, Ericsson lost 8,000 employees as a result of cost-saving programs, he said.

In response to demands from telecom providers to offer a broader range of equipment, Ericsson last year struck a partnership with Cisco, projecting the alliance would add $1 billion or more in annual sales for each company by 2018.

The partnership with Cisco also allows Ericsson to expand its product range to include fixed gear, a market that is still growing, without having to develop it itself. "We are reducing our ambitions and product portfolio that we have" and can "sell their products instead," Mr. Vestberg said.

In a similar effort to broaden its product line, Nokia earlier this year completed the acquisition of France's Alcatel-Lucent SA. In May, Nokia posted a surprising first-quarter loss.

Earlier this month, Ericsson introduced changes to its executive team and company structure, as part of a broader reorganization of the company into five business units and one dedicated customer-service unit, a move Mr. Vestberg said will contribute to the savings.

Ericsson, which in June said it was being investigated by U.S. authorities over possible corruption, expects unfavorable market conditions to continue to affect results in the second half of this year.

"The trends will continue," Mr. Vestberg said.

Write to Matthias Verbergt at Matthias.Verbergt@wsj.com

(END) Dow Jones Newswires

July 19, 2016 10:23 ET (14:23 GMT)

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