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Electronics Production | February 01, 2008

Ericsson cuts 4000 jobs on lower results

The year-over-year sales for the quarter were flat due to less spending from operators on network infrastructure and a continued weakened USD. About 50% of sales are USD related. For the full year, the sales increase amounted to 4%. In constant currencies, estimated organic growth was 8%.

Gross margin declined year-over-year mainly due to the business mix shift, with high proportion of new network builds and less expansions and upgrades, and the ongoing shift to new switching technologies. Sequentially, gross margin was stable as a result of the prevailing business conditions within mobile networks. Operating income amounted to SEK 7.6 (12.2) b. in the quarter and SEK 30.6 (35.8) b. for the full year. 1 SEK is worth approximately 0,1 EUR. Operating expenses amounted to SEK 15.2 (13.2) b in the quarter as a consequence of seasonality and newly acquired companies. Sony Ericsson's pre-tax profit contributed SEK 2.3 (2.2) b. to Group operating income in the quarter. Cash flow from operating activities reached SEK 12.0 (11.0) b. in the quarter and SEK 19.2 (18.5) b. for the full year. The working capital decreased in the quarter as a result of a high completion rate of turn key projects. This includes a favorable development of current liabilities such as VAT and accrued expenses. In addition, a payment from 3 UK of SEK 1.6 b. has been received following a renegotiated contract. Cash conversion for the full year increased to 66% (57%). Days sales outstanding have increased over the year, reflecting the higher share of sales in markets with longer payment terms. Other operating liabilities affected cash flow negatively by SEK 0.9 b. in the quarter as the advance payment from Sony Ericsson to Ericsson Mobile Platforms was consumed. Cash flow from investing activities was SEK -27.5 (-14.9) b., attributable to acquisitions of SEK 26.3 (18.1) b. during the year. Cash flow from financing activities was SEK 6.3 b. for the full year. "During 2007 we continued to strengthen our competitive position," said Carl-Henric Svanberg, President and CEO of Ericsson. We generated an operating income of SEK 30 b. During the autumn we did however experience significant margin erosion in our networks business. The continued rapid build out of mobile communications in emerging markets and our significant market share gains have resulted in a higher proportion of new network builds with initial lower margins. At the same time, we have seen a decline in network expansions and upgrades in mature markets. All this is resulting in a lower margin. The ongoing shift to new switching technologies, where we now build new footprint, has similar characteristics, which adds to this effect. The mobile networks market growth slowed during the year. As expected, our sales in the quarter were affected by political unrest in certain emerging markets. Professional services continued to show strong growth with stable margins while Multimedia is in a build-up phase and includes areas with good growth and healthy margins as well as investment areas. Cash flow improved in the fourth quarter leading to a better cash conversion year-over-year. We have steadily improved our leading position and market share in an increasingly challenging market. Our ambition is to continue to do so, irrespective of market fluctuations. Industry fundamentals and consumer behavior support a positive longer-term outlook. The market growth however slowed during last year and for 2008 we find it prudent to plan for a flattish mobile infrastructure market. We will intensify our operational excellence programs and reduce our cost base to safeguard our competitive position," said Carl-Henric Svanberg. Deferred tax assets increased in the quarter by SEK 0.2 b. to SEK 11.7 (11.5) b. due to the acquisition of LHS. Deferred tax assets increased during the year by SEK 2.0 b. due to acquisitions and were reduced by SEK 2.5 b. through normal utilization. During the quarter, approximately SEK 1.2 b. of provisions was utilized, absorbing costs related to product warranties, customer projects, restructuring and other. Additions of SEK 1.7 b. and reversals of SEK 1.4 b. have been made as a result of risk assessments in the ongoing business. At year end equity amounted to SEK 135.1 b., an increase by SEK 14.2 b. compared to previous year. Cost reductions Cost reductions of SEK 4 b. in annual savings will be made. These reductions will have full effect in 2009. All parts of the business will be affected, but main focus areas are SG&A, sourcing, supply and service delivery. One-time charges are estimated to SEK 4 b. and will be recognized as each activity is decided. A reduction of approximately 4,000 employees is expected in globally and will be made through voluntary programs as far as possible. Approximately 1000 of the staff will be cut in Sweden.
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