Ericsson will eliminate more jobs and reduce its research and development budget to compensate for a 24 percent drop in second-quarter net profits.
The company reported today that second-quarter sales fell 11 percent to $6.3 billion as wireless operators have cut their investments in 4G equipment. Analysts were expecting the company to report revenues of $6.7 billion for the quarter.
The company was hit the hardest in the Middle East, where revenues dropped 24 percent. In India, revenues declined 20 percent, and in Northern Europe and Central Asia they declined 18 percent. Western European sales declined 13 percent, while North America declined only 8 percent.
Ericsson didn’t say how many jobs will be cut or what areas of the company will be impacted by the reductions. Ericsson has already cut 8,000 employees in the first half of the year as a result of cost-cutting measures.
Ericsson CEO Hans Vestberg said in prepared remarks that the company’s cost and efficiency program, unveiled July 1, is on track to save the company $1.05 billion by year-end 2017. The new program is intended to reduce costs and improve efficiencies as well as eliminate duplicate product development.
Vestberg also said the company will reduce its R&D spending. This is a reversal from a few years ago when Vestberg touted the company’s R&D, calling it the “heart and brain” of the company.
Ericsson is hoping that things will turn around when wireless operators start making investments in 5G. The company is involved in several U.S. operator 5G trials, including AT&T, Verizon, and Sprint.
The company also is banking on its partnership with Cisco, and says that deal will allow it to lower its investments in IP networks. Vestburg said that the partnership has resulted in 30 deals so far and is on its way toward reaching the targeted sales of $1 billion for 2018.
Just last week at Cisco Live in Las Vegas, the two companies touted their collaboration, saying that the two executives spearheading the venture — Ericsson’s Rima Qureshi and Cisco’s Hilton Romanski — talk at least once per week.
Ericsson’s shares were down 7 percent to $7 midday.