Telecom network vendor Ericsson will announce a major cost cutting initiative including job reductions to slash cost by SEK 9 billion or $1.2 billion.

To achieve SEK 9 billion savings per year, Ericsson will spend an additional SEK 3-4 billion in restructuring costs during the three-year program. Half of the savings will reduce Ericsson’s operating expenses (Opex) and the other half will impact cost of sales (CoS), said Ericsson.

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The new Ericsson strategies follow a dismal third quarter in 2014. Ericsson’s Q3 operating income fell 7 percent to SEK 3.9 billion or $537 million on revenue of SEK 57.6 billion or $7.94 billion that grew 9 percent.

Hans Vestberg, president and CEO, will be announcing further details today at its Capital Markets Day in Stockholm.

Ericsson focus areas

Ericsson will focus on excelling in its core business including radio, core and transmission, and telecom services.

It is looking at establishing leadership in targeted areas such as Cloud, IP networks, TV and media, OSS and BSS, as well as in Industry & Society, addressing new customer segments outside of the telecom operator domain.

Telecom growth areas

Ericsson estimates that the total network equipment market during 2013-2017 will show a CAGR of 2-4 percent. The telecom services market is estimated to show a CAGR of 4-6 percent. The market for support solutions is forecasted to show a CAGR of 7-9 percent.

The telecom network vendor is targeting to grow faster than the projected total addressable market CAGR of 3-5 percent 2013-2017. Ericsson’s growth will be supported by a CAGR of approximately 10 percent in 2013-2017 in the targeted areas.

How Ericsson cut costs

Ericsson will streamline portfolio and make change in R&D. There will be structural enhancements in IS/IT; accelerated Service Delivery transformation; supply chain efficiencies; as well as structural efficiency gains in G&A. Savings will include both headcount reductions as well as savings in external costs.

Closing down of the modems operations and generation of savings from establishment of global ICT centers are already on.

Baburajan K
[email protected]