President and chief executive Lars Svensson remains bullish despite theexperts' gloomy predictions, writes Jamie Smyth.

You could forgive Lars Svensson, president and chief executive of Ericsson Enterprise, for feeling a bit depressed these days. Following almost two years of successive quarterly earnings warnings and thousands of job cuts, the Swedish firm stands on the brink of financial collapse.

The telecoms equipment maker's immediate difficulties may have receded following the completion of its $3.2 billion (€3.1 billion) rights issue last month, but analysts believe the firm's near-term outlook is extremely poor, and a further cash call on investors remains an unwelcome future probability.

The firm's latest warning last week underlined the crisis that the company, and the entire telecommunications industry, has become embroiled in.

Ericsson's share price, staffing levels and market capitalisation, are all hovering at levels last seen in 1992-93. It is as if the 1990s boom never happened.

"Of course this is absolutely disastrous; it has never happened before," admits Mr Svensson, who has worked for the company for more than 30 years.

In the late 1970s, when telecommunications technology moved to the first analogue digital switches, it was tough, as was the move to digital in the late 1980s. But it was nothing like this, he says.

"We are halving the number of employees because that is where we might end up... If our goal is 60,000 then I think we may end up with around 55-60,000 which I consider to be half - as I think at our peak we were at 108,000."

The large number of redundancies has taken its toll on morale, according to Mr Svensson.

"It is very tough, the biggest effect has happened in the local companies and, if you talk to the Irish organisation, it would be seen there... It must be incredibly tough for any of the existing staff remaining there to go out and try to sell to an industry that is so weak, while looking in the rear-view mirror at all the cutbacks we've done locally."

Ericsson's Irish operations have not escaped the knife. The firm has several operations in the Republic, including software development for third generation technology, a research and development organisation and some manufacturing operations in Athlone, Co Westmeath.

In the 12 months to December 31st, 2000, Ericsson generated £322.7 million (€409 million) revenue from its Irish operations and a pre-tax profit of £31.7 million.

During 2000, it employed an average of 2,039 staff, according to returns filed to the Company's Registration Office.

But the slump over the past two years has reduced its Irish workforce to 1,700 people and Ericsson recently warned workers that up to 100 jobs were under threat following its failure to win a contract to supply third generation technology to Vodafone Ireland.

The firm's financial results for its Irish subsidiaries are almost certain to see a massive slump in revenues.

"Basically, because there is no demand out there for us... Mobile operators have halved their net spending and that's why our sales are at that low level," says Mr Svensson.

"Everything we are doing this year is to adjust us to a very low sales level next year of about 125 billion Swedish krona (€13.6 billion), and that is somewhere around half of our peak."

At that peak during the height of the technology boom in 2000, Ericsson was reporting annual sales of 250-265 billion krona (€28.9 billion). In contrast, group orders totalled just 35.3 billion krona and group sales 38.5 billion krona in the second quarter.

Sales of mobile network equipment and software are down 40 per cent, but the biggest problem has been in fixed line and broadband which have just "died overnight", and are currently down 70 to 80 per cent, says Mr Svensson.

Issues at firms such as Global Crossing and WorldCom have not helped the industry but Ericsson's mistake was to be pulled by the incredibly strong market in 2000, according to Mr Svensson.

"It was the IT sector or the dotcom industry that really made it. I remember saying in 1999 why are they bringing us into the dotcom industry?"

Mr Svensson rejects the suggestion that telecoms companies like Ericsson got caught out by what chairman of the US Federal Reserve, Mr Alan Greenspan, has termed "infectious greed". "That's maybe a bit too much. I don't think we can say we are greedy because that's not the point. We have to follow what the customer wants," he says.

The real blame for the meltdown in the telecom sector lies with governments and the host of third generation mobile phone licensing contests in Europe which have sucked financial capital out of the industry.

"The underlying factor was the licence fee. What we are talking about is between €120 and €140 billion throughout Europe. If you look at the profit and loss accounts of operators, of course they had to borrow that money from the banks and financial institutions. That was the starting factor," says Mr Svensson.

"In August 2000, Mr Kurt Hellstrom, Ericsson president, said this licensing and the high level of fees would destroy the industry... Looking at the results now he was absolutely right."

The human story of these mobile contests in Europe is the 700,000 people worldwide who have lost their jobs in the telecoms sector. This has cost a huge amount of money, he adds.

Other factors have compounded this difficulty. Mobile penetration is running at about 78 per cent in European countries, such as the Republic, so there is a far lower demand in terms of new subscribers. And operators have implemented expensive packets switched networks such as GPRS without boosting revenues from data services, says Mr Svensson.

The big question is whether consumers take up the new services that are expected to be offered using the new third generation networks that Ericsson is selling?

"That is where I come in." he says. "Third generation is going to be a technology used more by enterprises as that is where you have the high demand for data over the network, not from consumers.

Video viewing and the gaming will eventually take off but probably the enterprise market will take off sooner than that."

Ericsson, and to a large extent most of the mobile operators throughout Europe, are gambling on businesses implementing the new high speed internet services as a means to increase productivity at work.

Mr Svensson believes sales and service staff will use the technology to access corporate data while out of the office and input information to corporate intranets and other systems.

Cost will be a factor with firms willing to remove fixed line telephones from employees desks and replacing them with mobile phones, he says. "I think everyone in the industry agrees that it will be cheaper with 3G than it has been with GSM/GPRS," he adds.

But optimists who predicted the service would be up and running by 2003 in Europe are out of touch, and Mr Svensson believes 2003 will be a year of trials and the technology won't be in widespread use until 2004 and 2005.

Consumer uptake may be later.

But despite the delays, Ericsson remains in a strong position to lead the market in third generation technology and currently claims 40 to 45 per cent of the European market, says Mr Svensson.

"Initially we thought Nortel would be a strong competitor in 3G as they took one of the first contracts with BT... (but) I think they are running at a very low level, maybe 5 or 10 per cent. Nokia has taken market share from the other players."

But the Swedish firm's precarious financial position may yet frustrate its wireless ambitions.

Asked whether Ericsson has the necessary cash to survive the slump, Mr Svensson is emphatic. "Every expert quoted in the Swedish newspapers says this would cover us." Only time will tell whether his judgment is correct.

Next week: Jamie Smyth interviews Cyril McGuire, co-founder and chief executive of Trintech, which develops software to facilitate electronic payments.