Local market tipped to ride communication slowdown

By CHRIS BARTON

New Zealand may be enough out of phase with the worldwide slowdown in telecommunications and technology that the local market could bypass much of the carnage.

That is the hope of Ericsson New Zealand managing director Goran Olsson, who still expects about 10 per cent revenue and profit growth this year - against the trend in the United States, where the market is expected to slow to zero growth. Mr Olsson said the dramatic US slowdown came after a year when the telecommunications market grew between 20 and 30 per cent.

"The United States economy is grinding to a halt. It may not grow at all this year. But we don't expect to see that impact in New Zealand," he said.

But he acknowledges that the projected 10 per cent growth locally is still a significant drop on the 20 per cent of last year.

Mr Olsson said that while Ericsson worldwide eliminates 3300 jobs, or 3 per cent of its workforce, in response to weakening economic conditions that have already forced sweeping cutbacks at US rival Motorola, there will be no job cuts to the 280 staff in New Zealand.

The cuts are aimed at reducing annual costs by at least 20 billion kronor ($4.8 billion). Three weeks ago, Ericsson's stock plunged after the company warned it would lose up to 500 million kronor during the first quarter. Ericsson is expected to unveil more cost-cutting measures on April 20, when it announces its first quarter results.

Mr Olsson said the New Zealand projections have been helped by its just-announced $50 million deal to build the country's first IP (internet protocol) public telecommunications network for Telstra.

The multi-services network will provide local, national, and international voice, data and video services using "new generation" packet-based and high-speed ethernet technology providing bandwidth of up to one gigabit per second.

The two-year deal which has some tight time frames, including a rollout to Auckland, Wellington and Christchurch by June, includes equipment from Extreme Networks, Juniper Networks, and Unisphere Networks.

Last week the Swedish company sold its 10 per cent stake in Juniper Networks for a capital gain of about 5.5 billion kronor. Mr Olsson said this would have no effect on the Telstra deal as Ericsson still maintained an OEM (original equipment manufacturer) agreement with Juniper.

Worldwide Ericsson derives 70 per cent of its revenue from network equipment and services sales such as the Telstra deal and is poised to become the dominant provider in the coming third-generation mobile networks.

The company's cost-cutting moves have focused on its handset manufacturing business which accounts for 20 per cent of revenues.

A month ago it announced it aimed to save 15 billion kronor from an agreement to farm out production of Ericsson phones to Flextronics International of Singapore, starting this month.