Sven-Christer Nilsson, Ericsson chief executive, said the shift towards cheap mobile phones sold as part of pay-as-you-go packages had hit the company's margins. "In spite of a strong increase in volumes we have not been able to compensate for this development in our operating income," he said. He added that the Asian crisis had hit demand for Ericsson's public telecom network equipment.
Ericsson said it would respond to the pressures with "substantial reductions" in its employee base. The group is now expected to cut a further 10,000 jobs, on top of existing plans to reduce its 100,000-strong workforce by 20,000.
Ericsson would not comment on where the job cuts were likely to fall. The company employs 3,500 in its UK operations, which include a mobile phone factory in Carlton, near Worksop.
The warning, which wiped 20 per cent off Ericsson's market value, sent shock waves through the rest of the mobile phone industry, hitting shares of rivals such as Nokia and Philips. But industry analysts said the problems were more likely to be particular to Ericsson. Nokia, its Finnish rival, recently overtook Motorola as the world's largest manufacturer of mobile phone handsets.
Roughly one in three mobile phones sold in Europe is of the pre-paid variety, which dispense with contracts and monthly bills.
Although demand has been booming, price competition has been intense. In the UK, both Vodafone and Cellnet are selling packages, including a phone and calls worth pounds 20, for as little as pounds 69.99 in the run-up to Christmas.Reuse content