Ericsson CEO: 'This is not a telecom crisis'

Despite announcing Ericsson would lay off an additional 5000 employees, CEO Carl-Henric Svanberg said the mobile infrastructure market has been little affected by the worsening economic climate, with demand for 3G capacity driving new infrastructure and upgrade contracts. While Ericsson is paring down its operations and staff as a precaution against a possible downturn in the wireless equipment market, Svanberg said its restructuring is primarily driven by the evolution of telecom networks to simpler architectures, not economic pressures.

“This is not a telecom crisis—this is a financial crisis that has turned into an economic slowdown,” Svanberg said today at Ericsson’s fourth-quarter earnings call. “If we look at our own market, operators are in good shape…So far we’ve hardly seen any effect at all on mobile network investments. We’re seeing effects on the fixed side. People are abandoning their fixed-line phones, but they are keeping their mobiles.”

Svanberg backed up his bold statements with impressive sales numbers. Ericsson reported a 23% increase year-over-year in fourth-quarter revenue, though its profits suffered to the tune of a 39% drop, primarily due to heavy declines for its handset venture with Sony. Sony Ericsson last week reported a 185 million-euro loss as phone shipments fell 21% in 2008. Analysts anticipate dismal sales numbers from the other handset makers this year as consumer spending dries up. While Svanberg acknowledged that the global phone and device market is suffering--particularly the replacement handset market—he said those losses aren’t having a direct effect on network growth. Growth is particularly strong in the US, which is enjoying somewhat of a renaissance in mobile data services driven in part by the Apple iPhone and other smartphones. Ericsson reported fourth-quarter sales growth of 13% in North America and 34% growth for the fiscal year. In the US, Ericsson is building T-Mobile’s new high-speed packet access (HSPA) network as well as expanding and upgrading AT&T Mobility’s.

“It’s all being driven by the consumer demand for mobile broadband,” Svanberg said of the North American market. “Everybody wants mobility wherever they are now, and there’s a lot of focus on the continued rollout of HSPA and expansion.”

Then why is a company with such market confidence cutting 5000 employees, many of which are in the network divisions that are still performing well? Svanberg said the layoffs are focused on evolving the structures to focus on the future telecom networks, all of which will be IP-based architectures supported by fewer software platforms and sharing common network elements. In short, Ericsson and the rest of the infrastructure industry will be building more networks on common platforms requiring fewer boxes, and its R&D and product development should reflect those changes, Svanberg said.