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What Can We Expect from Ericsson in 3Q17?

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Part 5
What Can We Expect from Ericsson in 3Q17? PART 5 OF 7

How Ericsson Plans to Further Cut Costs

Employee layoffs

In this series, we’ve seen how Ericsson (ERIC) is looking to merge and sell off loss-making and low-margin business segments. Ericsson is also laying off employees to cut costs. In 2016, it lost a managed services contract with Italy’s Wind and 3 Italia worth more than $1.0 billion. It then announced 400 job cuts in Italy.

According to a Reuters report, Ericsson could lay off approximately 25,000 employees outside Sweden. Ericsson hasn’t confirmed these reports, and certain sources claim that the figure could be higher. Ericsson has more than 3,000 employees based in Spain and might reduce its workforce by 30.0% in its Networks business unit. Additionally, Ericsson may have to let go of approximately 500 Abentel employees if the merger doesn’t go as planned.

Ericsson has a global workforce of 109,000 employees.

How Ericsson Plans to Further Cut Costs

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Ericsson to review 42 service contracts

During its last earnings call, Ericsson’s management identified 42 service contracts with total sales of approximately $860.0 million that it might exit or transform. According to another Reuters report, Ericsson has “recast nine of these contracts resulting in an annualized profit improvement of about SEK 140 million ($17 million) going forward.”

Ericsson plans to dispose of more than $1.0 billion in unprofitable wireless service contracts. Additionally, the company has removed a management layer and decreased the number of regional divisions from ten to five.

Europe’s largest activist investor, Cevian Capital, has a stake of approximately 5.0% in Ericsson. Cevian Capital wants Ericsson to focus on core networks that are lucrative and will drive revenue in the long run.

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