Today Ericsson reported a 31 percent drop in its fourth-quarter profits to 3.9 billion kronor ($465 million), announced 5,000 job cuts and said its core telecommunication equipment business was still unaffected by financial turmoil. Ericsson saw a large loss in its handset unit, but demand from telecommunication operators and a weakening currency meant strong equipment sales. According to the AP, Ericsson Chief Executive Carl-Henric Svanberg said:
“It remains, however, difficult to more precisely predict to what extent consumer telecom spending will be affected and how operators will act,” Svanberg added. “To date, our infrastructure business is hardly impacted at all, but it would be unreasonable to think that this would be the case also throughout 2009.”
That conservative thinking is why Ericsson is cutting its workforce, hoping to lower its burn rate through tumultuous times. I can’t fault this line of thinking, especially given the weakness of other players in the market such as Nortel, which filed for bankruptcy last week or Motorola, which has laid off thousands. However, it’s a vicious cycle, as the news of layoffs (and the layoffs themselves) cause folks to rethink their spending. I want to buy into the idea that we have nothing to fear but fear itself, but in times like these, that’s a hard sell.