* Innovation in Cisco tie-up slower than expected, exec says
* Ericsson struggles to offset declining mobile tower demand
* Company repeats it does not need big M&A deal
* To recruit about 1,000 R&D jobs over three years
* Share price largely unchanged as cuts confirm speculation
(Adds executive comments on state of Cisco partnership)
By Olof Swahnberg and Helena Soderpalm
STOCKHOLM, Oct 4 Ericsson is cutting
about a fifth of its Swedish workforce and hundreds of
consultants as demand for its network equipment shrinks and
competition from China's Huawei and Finland's Nokia
The 3,900 job cuts remove most of Ericsson's remaining
manufacturing presence at home, where it had 5 percent of global
production, and come before it has found a new chief executive
to replace Hans Vestberg, who was pushed out in late July as
major investors revolted over the Swedish firm's performance.
Failure to offset waning demand for telecom equipment has
caused Ericsson shares to lose a quarter of their value this
year and politicians and unions had scrambled in recent weeks to
save jobs at the company, which was founded in 1876 as a maker
of telegraph equipment and is one of Sweden's biggest employers
with a global staff of 116,500.
"It is a knife in the heart," Swedish Enterprise Minister
Mikael Damberg said on Tuesday. "I feel for the affected
families and municipalities."
Ericsson still has the backing of prominent Swedish
investors, the Wallenberg family-backed Investor and
Industrivarden, but is under growing pressure for
being too slow to take full advantage of the global explosion in
data traffic, enterprise networking and cloud computing.
Last year, the company joined forces with U.S.-based
Internet router maker Cisco to fill a gap in its
product line and sell combined network solutions to bolster
But the partnership has yet to announce any major sales
breakthrough and some investors have expressed concern over
whether the collaboration will deliver.
Ericsson's deputy head of strategy Mikael Back
said new product innovation was a bit slower than anticipated
although the partnership was going largely according to plan.
"A little bit of what I think people are disappointed about
is that the creation of fantastic new things is taking a longer
time than we had expected," Back, who has served as deputy head
of Ericsson's strategy for over four years and first joined the
company in 1994, told Reuters.
The Cisco tie-up is a test of Ericsson management's claim
that it does not need a big merger to match Nokia's acquisition
of Alcatel Lucent.
"There isn't a silver bullet which can solve everything,"
Back said when asked about big M&A, adding that organic growth
remained at Ericsson's core.
Ericsson and Cisco aim to generate an extra $1 billion in
sales apiece by 2018 by integrating IP and wireless solutions
and collaborating to create new products, an ambition acting CEO
Jan Frykhammar said still stands.
In its quarterly report in July, Ericsson said that through
its partnership with Cisco more than 30 deals had been closed to
date, a good start towards reaching its 2018 sales target.
However, some worry about the lack of real sales figures to
prove the partnership is working.
"It is difficult to say what it generates sales-wise, if
Cisco helps and sells or if they just piggy back on Ericsson,"
said Inge Heydorn, a fund manager at Sentat Asset Management
which invests in telecom and IT shares globally but currently
holds no Ericsson shares. "Because this is not known...there is
definitely a concern."
One former high-ranking manager at Ericsson, who spoke on
condition of anonymity, said he sees problems with the
partnership as both firms sell directly to some key telecoms
operators and sales cooperation is difficult.
A more limited fixed line partnership with Cisco in 2004
failed to generate any real value due to disagreements between
sales forces, he said.
Back said this time both firms had been working on better
"For the team out in the field, it may not be natural to
cooperate from day one, so we must push them and Cisco must push
them. But I think we saw that problem very early," he said.
Ericsson said in addition to 3,000 job cuts in production,
research and development and sales, 900 consultancy positions
will go. But to soften the blow, it will hire about 1,000
researchers and developers in Sweden over the next three years.
In July, Ericsson said it would step up efficiency measures
due to a tough market, having already announced a 9 billion
Swedish crown ($1.1 billion) cost-cutting programme in 2014.
(Additional reporting by Johan Sennero and writing by Mia
Shanley, Editing by Mark Potter and Alexander Smith)