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Swedish communications giant Ericsson revealed sweeping new job cuts on Tuesday after seeing its sales tumble 30 percent during the quarter.

The company said it cut 3,700 people during the past quarter and that it would now accelerate this restructuring program. Another 9,000 jobs are set to go by the end of this year, followed by the elimination of a further 5,000 positions by the end of 2003, bringing Ericsson's headcount to just 47,000, its lowest in more than a decade. The accelerated cost cutting plan will add SEK11 billion (EUR1.2 billion) to the company's restructuring charges.

The restructuring announcement was made as part of the company's first quarter results: its net loss totalled SEK4.3 billion (EUR470 million) and net sales during the period fell 30 percent to SEK25.9 billion. These figures were slightly better than analysts had expected, but the sweeping cost cuts took the market by surprise: although further reductions had been expected, analysts believed these might have been delayed for some weeks, as Ericsson's new CEO Carl-Henric Svanberg has been in the job for less than a month.

Svanberg said in a statement that he was determined to bring the company to profitability this year, excluding the extra restructuring charges for the cuts announced on Tuesday. He said the new cuts were unavoidable given the weaker than expected short term demand. "We are heading in the right direction, but a lot more can be done to simplify our way of working and further reduce costs," he said. "... I want us to be able to generate profit even if sales remain at current levels."

During the first quarter, orders were also down, falling 35 percent over the year-earlier period to SEK27.1 billion. The company also took a hit during the quarter after it lost a patent infringement suit with InterDigital Communications Corporation. Ericsson and its mobile phone joint venture Sony Ericsson will now pay USD34 million to InterDigital as part of the settlement, followed by annual payments of USD6 million until 2006.

Sony Ericsson Mobile Communications, which shipped 5.4 million units during the quarter, saw sales plummet 35 percent over the previous quarter to EUR805 million, due to weaker volumes and price pressure. Looking at the industry as a whole, Ericsson said it believes that 430 million mobile phones will be shipped this year, but as mobile operators are more cautious than ever about investing, Ericsson said it believes the mobile systems market could fall by more than 10 percent this year.

Despite the grim outlook from Ericsson, investors approved of the bold cost cutting actions at the company, and its shares were up more than 10 percent to SEK8.8 in Stockholm in early trading.

© ENN

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