Earnings hang up at Ericsson but Philips glows brightly

A tale of two strategies - profits nosedive at Sweden's Ericsson whilst Dutch group Philips enjoys lightbulb moment.

Last Updated: 25 Oct 2010

What a difference a year makes. Profits at networking infrastructure business Ericsson may not have been anything to write home about for some time now, but Hans Vestberg, the president and chief executive of the company, was surely hoping that cost-cutting efforts could turn their fortunes around. Alas, it wasn’t quite the success he and his management team envisaged: profits down by an eye-watering 92% to 314m Swedish kronor (£26.9m) in the fourth quarter of 2009, way beyond the gloomiest of City predictions, raising fears that further swingeing cuts may be on the way.

Meanwhile, Amsterdam headquartered electronics company Philips can give itself a well-deserved pat on the back for its restructuring efforts. The firm has managed to achieve a net profit of 251m euros (£220m) for the fourth quarter – not bad considering it reported a loss of 1.2bn euros in the same period just a year ago.

For Ericsson, this latest set of results caps a tough year. In November, it said that it would cut 5,000 jobs and announced the closure of its Ansty Park R&D site in Coventry, with in 700 UK jobs being moved abroad. But in the light of these dismal results the telecoms equipment maker has revised this estimate upwards, saying that 6,500 jobs will now be axed.

Ericsson has blamed its woes on customers failing to switch to broadband fast enough, and moaned that the pay-off from investments in mobile broadband and high speed networks has not yet materialised. It’s also been hit by cuts in spending across the sector as a whole. 

Its mobile phone JV Sony Ericsson also posted a loss – a far cry from the early days of mobile phones, when Ericsson was a pioneer of the industry and could hardly make handsets fast enough to satisfy demand. These days its good value handsets are popular with teenagers, but are losing out to cooler, smarter and more sophisticated rivals like the ubiquitous i-Phone. 

Back at Philips, rather than dressing their achievements up in management speak, bosses says the impressive turnaround is thanks largely to the savings arising from axing 5,474 jobs. Those Dutch aren’t afraid to tell it like it is, are they? But sales remain down 3.4% on the same period in 2004, so the prognosis is not quite so rosy unless that figure can be improved upon.

But for now the good news from Philips has certainly raised morale both inside and outside the company. The Standard today reported how an analyst at ING claimed to have tears in his eyes as Philips beat predictions. Ah, bless…


In today's bulletin:

Goldman's £1m bonus cap music to Myners' ears?

Earnings hang up at Ericsson but Philips glows brightly

Editor's blog: Grey hairs on the march

The future of face-to-face meetings

MT Expert's Ten Top Tips: Stop your people getting 'happy feet'

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