Ericsson to cut 3,000 jobs in Sweden as network demand wanes

An Ericsson employee works on a circuit board during production of 2G, 3G and 4G data networking devices at the company's factory in Tallinn, Estonia, on April 22, 2015.  Bloomberg photo by Peter Kollanyi.

Ericsson plans to cut 3,000 jobs in Sweden, a fifth of the workforce in its home country, as it curbs production to cope with shifting technology and stagnant demand for wireless-network equipment.

The company will reduce manufacturing in the towns of Boraas and Kumla — a move it signaled last month — as it turns its focus to software development, according to a statement Tuesday. Ericsson, which has 16,000 workers in Sweden, is also cutting jobs in sales, administration, research and development. Ericsson’s U.S. headquarters is in Plano, but there were no announcements of cuts in the U.S. 

The blow to its last remaining Swedish factories underscores the extent of Ericsson’s challenges as it tries to keep up with rising competition and slowing demand from phone carriers. As the slump ate into profit, Ericsson ousted its chief executive officer in July and has targeted cost cuts aimed at saving 9 billion kronor ($1.05 billion) a year by 2017.

“There is more to come,” said Sebastien Sztabowicz, an analyst at Kepler Cheuvreux in Paris, estimating that the company needs to reduce at least 15,000 positions to achieve its target. “We are less than halfway there.”

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The company is trying to revive earnings growth through savings as it competes with Huawei Technologies and Nokia for profits in an increasingly tough market. Sales in the second quarter slumped 11 percent as phone carriers in Europe, Russia and Brazil curbed investments in wireless equipment.

As it cuts back, Ericsson said it needs to shore up its abilities in emerging areas that require software expertise. The company plans to recruit workers for about 1,000 research and development positions in Sweden in the next three years, mainly from universities, as it focuses on new technologies such as fifth-generation networks, which allow mode devices from refrigerators to traffic lights to be connected.

Shares of Ericsson rose 0.1 percent to 61.40 kronor at 12:16 p.m. in Stockholm. They’ve lost 25 percent this year through Monday.

Ericsson, which traces its roots to a telegraph repair shop opened in 1876, will be left with little production in a country where it’s been a household name and a major employer for decades. Boraas and Kumla are Ericsson’s last remaining factories in Sweden, after it already moved the bulk of production to lower-cost countries such as India, China and Estonia.

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“We’ve said the reductions will be significant, and both these two sites are significant production plants for us,” CEO Jan Frykhammar said at a media conference. “We do aim to keep advanced pre-series production at Kumla.”

The cuts also affect Ericsson sites including Stockholm and Gothenburg. The company plans to make “general cost reductions” and lower the number of consultants it’s using in Sweden by 900.

The reductions are a “massive blow” for Ericsson in Sweden, especially for factory towns Boraas and Kumla, Tomas Blidberg, head of negotiations at Ericsson for Swedish Association of Graduate Engineers, said by phone.

Carriers are restraining investments after spending billions of dollars building fourth-generation network systems so users can stream music and video on phones and tablets. Meanwhile demand for so-called fifth-generation, or 5G, equipment is yet to pick up as the technology isn’t ready yet.

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“We have a tough market situation right now with many emerging markets facing significant troubles,” Frykhammar said. “We’re doing this to increase the endurance of our company.”

Ericsson had about 116,000 employees in total at the end of June.