Swedish telecommunications equipment maker LM Ericsson Telephone yesterday blamed the "global financial crisis" for what it predicts will be lower-than-expected profits and earnings for the 1998 fiscal year.
Speaking at an analyst meeting in Stockholm, Ericsson chief executive Sven-Christer Nilsson said the company's poor results will mean substantial job cuts in 1999, but didn't give a precise number of expected lay-offs. Weakening demand for Ericsson's products due to economic problems around the globe, and in particular Asia, will drive both earnings and profits for the year below market expectations, he said.
Though Ericsson has seen a fall-off of business in Asia, it isn't just in that region where the company is feeling the pinch.
"Even though there are certain signs of recovery in some Asian markets there are wider repercussions on global demand which are now affecting sales and income," he said in the statement.
Hit hardest has been demand in Ericsson's Public Networks division, supplying general telephony systems, Nilsson said. However, the company's mobile phone handset division also suffered this year, as more people opted for inexpensive phones that work with pre-paid calling cards. These entry-level phones have small margins, and despite an increase in volumes, Ericsson was not able to adjust its operations to make a profit in this area.
One bright spot in 1998 for the company was in the provision of mobile networks. Demand for these sorts of systems remained unaffected by the financial crises around the world, Ericsson said.
Looking forward, Ericsson expects to see a slow start to 1999, with the company not meeting growth projections for the year. However, over the long term, the company is confident it can meet and exceed expectations through restructuring and the development of new operations, Nilsson said.
Ericsson will announce the number of job cuts it plans to make on January 28, when it will also release its 1998 financial report.