Ericsson confirmed today that up to 10,000 jobs will be lost throughout its organization next year, but said the restructuring is unlikely to have any major effect on its UK operation.
Sven-Christer Nilsson, Ericsson's chief executive announced yesterday that both profit and sales for 1998 would be "somewhat below" market expectations when they are announced next January and substantial job losses would occur.
But Ericsson said today that while job cuts could not be ruled out in any of the 140 countries in which it operates, the effect on its base of 3,500 UK employees would not be great.
"I'm not at all expecting any major effects in the UK," said Lars Stelberg, senior vice president communication at Ericsson, this morning. "The company in the UK has already undertaken a lot of measures in order to streamline the operations."
Ericsson has marketing, sales, software design, manufacturing, distribution and installation operations at its four UK locations - Guildford, Basingstoke, Scunthorpe and Worksop. The company is also creating a new regional headquarters for Europe, Middle East and Africa in London.
In the UK, Ericsson has had a good year and is still recruiting, so no business closures or job losses are planned at this stage, a company spokeswoman in the UK said. The UK is Ericsson's number three market after China and the US, she said, adding, "we're very profitable."
But whether Ericsson will actually close plants or simply sell them off remains unclear, according to Niel Barton a financial analayst at Merrill Lynch. "I'm sceptical as to what 'staff effected' means - we're not necessarily talking about layoffs," he said.
"I think it could well be a divestment," said Barton. Ericsson has already sold off some plants in different countries to SCI and Selectron, and both are keen to diversify out of computing, he added.
Ericsson's share price nosedived yesterday after the profit warning and the job cut announcement, losing over 16 per cent during trading on the Nasdaq composite index in New York.
Nilsson blamed the anticipated shortfall on the continuing global financial crisis, although it said business had improved in some parts of Asia.
"The financial crisis in certain markets and the related general economic uncertainty is affecting us and emphasises with renewed strength the need for a strengthening of the ongoing rationalisation programs," said Nilsson.
Incredibly, Nilsson attributed some of the financial strain to the success of prepaid mobile phones. Prepaid deals have created a massive boom in mobile phone usage, but they generally use lower end phones that make less money for the manufacturer.
"In mobile phones our operating income during the last months of the year is negatively affected by the shift in demand towards entry-level phones with reduced margins," he said. "These phones are demanded for the rapidly growing prepaid services which now account for one third of the market in Western Europe."
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