Ericsson joins the layoff spree with plans to sack 8,500 employees

Two months ago, Swedish telecom giant Ericsson — one of the world’s biggest providers of 5G mobile networks — hinted at a possible layoff when it set a goal to cut costs by 9 billion crowns (US$857 million) by the end of this year. Indeed the cost-cutting strategy would involve a layoff, the biggest one the industry has seen for the year. The company, in a memo to employees, said 8,500 workers globally would be impacted in this exercise,

According to the memo written to staff members and seen by Reuters, the entire exercise would occur in the first half of this year, and may extend into next year, impacting 8% of the company’s global workforce of 105,529 employees. Starting with 1,400 employees in Sweden this week, Reuters noted that further job cuts, numbering several thousand in other countries, are likely to be announced in the coming days.

The company has been negotiating with its employee union in Sweden for months on how to handle cost cuts. “Agreement has now been reached with Swedish unions on how to manage headcount reductions,” a spokesperson told Reuters, adding that the company intends to make the cuts through a voluntary program.

Ericsson hinted at a possible layoff during the company’s Capital Markets Day on December 15 last year as an “acceleration of structural cost reduction efforts.” The spokesperson also noted that the headcount reductions would be managed differently, depending on the local country practice,” the spokesperson told CNBC.

For context, the Swedish company, which provides equipment for 5G networks, aims to reduce expenses after the market for its telecommunications gear stopped growing. The company had reported lower-than-expected fourth-quarter core earnings as sales of 5G equipment slowed in high-margin markets such as the US.

“We see a potential to simplify and become more efficient throughout the company, especially when it comes to structural costs,” Ericsson spokesperson Jenny Hedelin said, according to Bloomberg. The company had previously forecast that this year’s savings would come mainly from reduced costs of goods sold.

The cost-cutting initiatives Ericsson has been embarking on include decreasing consultants, real estate, and staff numbers, the company’s Chief Financial Officer Carl Mellander told news agency Reuters. On the layoffs Ericsson will be undertaking, Mellander said that the approach would differ according to the location. “Some are starting now, and we’ll take it unit by unit, considering the labor laws of different countries.” 

Ericsson also said it expects to start seeing the effect of its cost savings in the second quarter of this year. While Ericsson did not disclose which geography would be most affected, some analysts predicted North America would likely be most concerned. According to its website, the company employs about 11,994 people in North America.

Not the largest layoff at Ericsson

To recall, the current scale of layoffs by Ericsson is not new. The Swedish company’s last big round of layoffs came after Börje Ekholm joined the company as CEO in early 2017, when the operator cut a net total of 10,729 jobs, according to its annual reports. Following that, Ericsson trimmed its workforce with another 5,376 layoffs in 2018. 

Those layoffs were primarily attributed to the company’s decision to quit various non-core activities and focus on restoring profitability, as its central networks unit was mainly held responsible. After those two rounds, the company gained 10,170 employees through takeover activity and expansion, giving it 105,529 employees at the end of last year.

The recent US$6 billion acquisition of Vonage also brought a couple of thousand workers into Ericsson. Moreover, Ericsson had recently combined two formerly separate units – digital and managed services – to create a unified cloud software and services division. Since a takeover often leads to a surplus in staff, a headcount reduction is inevitable, considering Ericson has been practicing cost-cutting measures.

Even the company’s profitability has been under pressure, as it saw a 15% drop in operating income to SEK27 billion (US$2.6 billion) last year, despite sales growing by 17% to about SEK271.5 billion (US$26 billion). In his published remarks for the recent earnings report, Ekholm blamed the “inflationary environment” and drew attention to cost-saving targets.