Holy guacamole! Ericsson loses 92% of its profits as mobile operators stop spending

2009 was not a good year for Ericsson. The mobile network builder has reported that its profits were down by over 90% for the fourth quarter – and that 1,500 more people will have to be let go.

What does Ericsson do?

Ericsson is a truly colossal company – and it has a lot of fingers in a lot of pies. But the central pillar of the company is mobile network infrastructure and wireless equipment. Operators tend not to build or upgrade their own networks. When expanding to a new territory or bumping a network from 2G to 3G (or 3G to 3.5G), operators will call in a network infrastructure specialist, and Ericsson is pretty much the biggest one around.

But during 2009, mobile operators cut spending on upgrades to a bare minimum, and Ericsson has felt the crunch. Net profit for Ericsson in Q4 2009 was down to $43 million from close to $540 million during Q4 2008. Profits for the entire year fell by 67% between 2008 and 2009. As a result, the number of layoffs planned by the company has increased from 5,000 to 6,500.

What we think?

The number of networks that actually need to be built was dropping anyway – most places in the world that need a network already have one. Ericsson was already beginning to change its core business away from building networks and towards upgrading and managing networks already in place. Considering the sheer number of operators who chose Ericsson to build their networks, and will continue to depend on Ericsson to keep those networks running, I would seriously doubt this vast dip in profit is too much of a threat to the company… just to the job stability of it’s tens of thousands of employees.