Samsung is cutting jobs at its networks business
Half-starved network equipment providers are wondering when and from where their next meal will come. Living on frugal rations for much of the last year, Ericsson and Nokia have already cut many thousands of jobs in response to the worst sales slump since the dotcom crash. The practice has now reached South Korea, where Samsung's networks business is also making hefty reductions to the size of its workforce, according to a local newspaper report and multiple sources with knowledge of the matter.
Unlike its Nordic competitors, which are simply laying off staff, Samsung is understood to be moving workers out of its networks business and into other parts of Samsung. Around 700 of 4,000 employees in South Korea are being reassigned, said a story in Business Korea last week. One source explained the move with reference to stringent local employment laws that make straightforward job cuts difficult to execute. Another said the program affects a quarter of engineering jobs as well as a tenth of roles in North America. Samsung representatives acknowledged the existence of the program but declined to confirm the accuracy of the details.
Workforce shrinkage is unsurprising. Revenues at Samsung's networks business fell 31% for the first quarter of 2024, to 740 billion South Korean won (US$530 million), compared with the year-earlier period. That drop followed a sales decline of nearly 30% in 2023, to KRW3.78 trillion ($2.7 billion). In North America, one of the most profitable markets for equipment vendors, telcos have been relying on stockpiles they previously amassed instead of buying new parts. Verizon, Samsung's biggest North American customer, booked just $4.4 billion in capital spending for the first quarter, down from $6 billion a year earlier.
Weak appetite
Outside America, operators globally have seen less need to invest in network equipment, slashing their capital expenditure. Market research firm Omdia, a Light Reading sister company, has calculated that overall spending on radio access network (RAN) products fell 11% last year. It forecasts another contraction of between 7% and 9% this year. This is especially problematic for Samsung, which seems to generate most of its network revenues from the sale of 4G and 5G technologies and have no significant presence in other sectors.
The weak appetite for spending is blamed partly on 5G's failure to generate additional revenues for telcos, whose complaints about poor returns on investment have grown louder in the last year. Nevertheless, the bosses of Ericsson and Nokia argue that growth in mobile data traffic will soon force their customers to invest in additional capacity for their networks.
But some commentators are unconvinced spending will enjoy a significant rebound. The rate of data traffic growth, according to multiple analysts, is no longer "exponential," as some telcos insist, but slowing. In a recent white paper, Analysys Mason, a consulting and analyst company, said there would be no cyclical recovery this time. Capital intensity, which measures spending as a percentage of sales, will fall from an average of about 20% today to between 12% and 14% by the end of the decade, it said.
News of job cuts at Samsung's networks business comes several months after Ericsson said it would reduce headcount in Sweden by 1,200 roles amid "challenging" conditions. Its latest quarterly report showed that headcount fell by 6,389 positions between late 2022 and March 2024, to 99,140. Sales at Ericsson's networks business fell 21% for the first quarter, to 33.7 billion Swedish kronor ($3.2 billion), compared with the year-earlier period. "Cost initiatives" were responsible for an improvement of 4.3 percentage points in the gross margin, to 44%, said Ericsson.
The situation looks even worse at Nokia after it lost a major AT&T contract to Ericsson last year. First-quarter mobile network sales dropped 39% year-over-year, to €1.58 billion ($1.7 billion). And while Nokia also flagged an improvement in its gross margin, the mobile network business group slid to an operating loss of €42 million ($45 million), compared with a profit of €137 million ($147 million) a year before. CEO Pekka Lundmark aims to reduce headcount to between 72,000 and 77,000 employees by the end of 2026. Last year, Nokia employed 86,689 people, according to its latest annual report.
Limited commercial opportunities
In sales terms, at current exchange rates, Samsung last year made only about a quarter as much as Nokia did and just 16% of Ericsson's revenues in the mobile equipment market. Matching the Nordic companies on research and development (R&D), then, would be impossible unless Samsung were prepared to operate its networks business at a substantial loss.
Overall R&D spending last year at Ericson and Nokia came to about $9.5 billion, with Robert Soni, an AT&T executive, estimating about $5 billion of this went on mobile networks. It implies Samsung would have to spend about $2.5 billion, only $200 million less than it made in sales last year, to achieve annual parity. Of course, Samsung could always divert resources from other parts of the group, having had a total R&D budget of about $20.4 billion in 2023.
But reports of cuts suggest the reverse is happening. One source says the R&D department at Samsung's networks business has been cut by 20%. Immediate commercial opportunities for Samsung, meanwhile, appear limited. In North America, the "single vendor" nature of AT&T's $14 billion contract with Ericsson does not leave much if any room for other big kit vendors. In India, operators have paused for breath after racing to build out nationwide 5G networks last year. Samsung has also lost market share in the huge Asian country to Ericsson and Nokia. Both Nordic vendors are selling 5G products to Reliance Jio, India's biggest operator, which had relied exclusively on Samsung for its 4G network.
Samsung's best hope is a much-discussed equipment tender by Vodafone, covering about 170,000 basestations in Europe and Africa, as confirmed in the telco's last annual report. Evangelistic about open RAN, which allows products from different vendors to be combined at the same mobile site, Vodafone has already made Samsung the fulcrum of rollouts based on this concept in the UK and Romania. It is also under growing political pressure to evict Huawei, a controversial Chinese vendor, from networks throughout Europe.
Orange is also dabbling with Samsung technologies in Romania, one of several European countries to have imposed restrictions on Huawei. like Vodafone, the French operator is enthusiastic about open RAN and may be drawn to Samsung in the absence of other muscular alternatives to Ericsson and Nokia. After the latest developments on the jobs front, the survival of some smaller players must surely be in doubt.
