When a giant shifts its weight around, somebody gets hurt. Telecom infrastructure giant Ericsson (NASDAQ:ERIC) is undergoing a large-scale restructuring, and with that comes the job cuts. The good news is that Ericsson is being gentle about it.
No pain, no gain
About 400 administrative and sales positions have been made redundant in the restructuring process, but management has offered the 4,600 workers in the affected areas a choice to leave with a generous severance package, hoping to avoid involuntary job cuts. If up to 18 months' salary and job search assistance doesn't cut it, many workers also have the option of moving to one of Manpower's (NYSE:MAN) subsidiaries as consultants.
Having worked for a company in the habit of cutting a few hundred jobs every Christmas, I know firsthand how productivity suffers when the staff members in the trenches just want to cover their backs to protect their jobs. But this is a kinder, gentler layoff program, and less likely to hurt worker morale than straight cuts would. Smart move, Ericsson.
It's also an attractive recruiting move for Manpower, as Ericsson is a well-regarded organization with decades of operational excellence behind it. Managers plucked from those ranks could become valuable management consultants indeed. "We need to add about 10,000 workers over the next eight months," said Lars Forseth, CEO of Manpower Sweden, "and we know that Ericsson employees have a level of competence coveted by our 5,000 customers." Think along the lines of General Electric or 3M, companies often raided for well-coached management talent.
The restructuring is reducing Ericsson from five divisions to three, with a simpler and more direct management structure. As always, the idea is to reduce bureaucracy and speed up the decision-making process, so that the company can respond to market challenges in a timely manner.
The new reportable segments are known as Networks, Multimedia, and Global Services. The former Access and Systems segments have been folded into the old Broadband Networks operations. The Multimedia division is breaking out from its sub-segment position within Systems and absorbing the Enterprise and Mobile Platforms units. The handset production business will continue to run as a separately managed joint venture with Sony (NYSE:SNE).
Market mojo
The restructuring coincides with a very large infrastructure order from T-Mobile USA, the North American mobile phone subsidiary of Deutsche Telekom (NYSE:DT). T-Mobile will spend about $2.7 billion over the next three years to upgrade its network with high-bandwidth 3G technology, and the contract was largely split between Ericsson and Nokia (NYSE:NOK).
None of the three companies have provided financial details, but it looks like Ericsson gets the lion's share of the deal as the prime radio provider for the upgraded New York City network and other regions. Support and services also play large parts in the opportunity here.
Though the Finnish fighter caught at least some of the windfall this time, Ericsson's market leadership remains unquestioned. It's no wonder some of the smaller players feel a need to gang up on the big Swede. And if Ericsson runs out of organic growth opportunities, management has recently stated that it keeps an open mind about acquisitions. The company has $7.5 billion of cash on hand, compared to just $1.9 billion of debt, and produced more than $2.5 billion of free cash flow over the past four quarters. That's a powerful war chest.
Overall, it's no wonder your fellow investors have bestowed five stars on Ericsson in our CAPS community. I'm tempted to add the stock to my own portfolio, and not just out of patriotism, either. It's a classic Rule Maker, if you remember that concept, and the pack of wolves behind it is eating Ericsson's dust rather than breathing down its neck.
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Fool contributor Anders Bylund holds no position in any of the companies discussed here, but he feels like a traitor for owning a Nokia phone. You can check out Anders' holdings if you like, and Foolishdisclosureis always a brilliant idea.
