ERIC Ericsson

By Matthias Verbergt 

STOCKHOLM -- Ericsson AB on Tuesday said it plans to lay off nearly 20% of its home-country workforce, as the Swedish maker of telecom-network equipment races to cut costs in the face of intensifying competition from Chinese rivals and weak demand for its specialty wireless products.

The announcement is the first step of a wider restructuring program that will see Ericsson significantly reduce its global staff of 115,000, according to Ericsson's acting chief executive, Jan Frykhammar, who warned even tougher cost-cutting measures may be necessary.

"The industry we're operating in is undergoing a very fast change," Mr. Frykhammar said in an interview. "If the speed of change in the industry accelerates further, we'll need more transformation."

Mr. Frykhammar was named acting CEO in late July when Ericsson ousted Hans Vestberg, saying he had failed to reverse a protracted trend of declining profit and revenue.

Ericsson is battling slowing demand for its cellphone towers and switches in a market where spending by mobile-service providers on latest-generation mobile networks, known as 4G, has largely dried up. At the same time, competition has risen, with China's Huawei Technologies Co. aggressively expanding on Ericsson's traditional European turf and Nordic rival Nokia Corp. building muscle through the acquisition of Alcatel Lucent SA.

Ericsson is betting on the development of faster wireless networks, called 5G, and software-based services such as the so-called Internet of Things and cloud computing. But the first revenue from 5G is several years away, and the new businesses have been slow to take up, analysts say.

In Sweden, the company said it intends to cut 1,000 positions in production, 800 in research and development, and 1,200 in other operations such as sales and administration, totaling a reduction of 3,000 of its 16,000 local workers. Ericsson also said it would reduce the number of outside consultants in Sweden by 900. The company said it was in talks with unions over the planned job cuts.

Ericsson said the staff reduction would primarily impact the company's last remaining Swedish production facilities in Boras and Kumla, where it makes prototypes and initial series of mobile products, such as parts of radio base stations. The rest of Ericsson's manufacturing of network gear has moved to low-wage countries -- mainly China and Estonia -- over the past decades.

Mr. Frykhammar said Ericsson would keep "limited prototype manufacturing related to 5G" in Kumla, adding that the company is looking for a potential buyer for the Boras plant.

The acting CEO said the company would book between 4 billion and 5 billion Swedish kronor ($464 million to $580 million) in restructuring charges against 2016 earnings, but added more charges would weigh on 2017 results.

"We will come back with charges for next year," Mr. Frykhammar said.

Over the coming three years, the company said it plans to recruit about 1,000 positions in research and development in Sweden to bring in new competence in new technologies.

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

(END) Dow Jones Newswires

October 04, 2016 11:52 ET (15:52 GMT)

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