Exploring Shanghai Ericsson Building: An employee confirms that the "Core Network" R&D department will lay off employees, and performance is under pressure due to the cooling down of 5G base station construction
worrysorry2017
发表于 2024-3-12 19:35:23
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Recently, there have been market rumors that Ericsson will make strategic adjustments to its business in China, resulting in widespread layoffs in its research and development positions.
On March 12th, a reporter from 21st Century Business Herald conducted an on-site investigation at the Ericsson Building in Shanghai and found that its Shanghai office is still operating normally, with occasional personnel entering and exiting. But the news of layoffs is not unfounded. An Ericsson employee on site told reporters that he learned of the layoffs very suddenly.
On March 7th, we connected to an online meeting with around 1000 attendees. A foreign leader said that the Ericsson Packet Core (commonly known as the Core Network) business department would be laying off employees, and the meeting lasted for about 30 minutes. During the meeting, employees asked about the reasons, time, and scale of the layoffs, but the leader stated that it was not clear at the moment. As of today, HR has not talked to us about the compensation plan, and everyone is still working normally, but they are all confused The employee stated.
It is understood that the "hardest hit areas" of Ericsson's layoffs this time are concentrated in the packet core (commonly known as the core network) business unit. Currently, most of the R&D personnel on the 10th floor of Ericsson's building, where the Shanghai office is located, belong to this department, with a staff size of about 1000 people.
At the same time, a property manager inside the Ericsson building told 21st Century Business Herald that the possibility of the complete closure of Ericsson's Shanghai department seems unlikely. "At the end of last year, Ericsson's office also brought in a large number of office equipment for replacement, which felt like it meant long-term development here."
Ericsson responded to the media that it is enriching its R&D team globally to better align with its business and users, while improving the flexibility and cost efficiency of software design. We will continue to uphold our commitment to Chinese users and will not withdraw from the Chinese market.
The above-mentioned employee of Ericsson's Shanghai office told reporters that according to his understanding, even if there are adjustments to the core network department, it does not mean that all Ericsson's business will withdraw from China. Currently, Ericsson's cloud and wireless business in the Chinese market is still operating normally.
Faced with Huawei and ZTE's "encirclement and suppression"
Regardless of whether it is rumored that all Shanghai offices will be disbanded or not, it is still an undeniable fact that Ericsson is facing severe challenges in the Chinese market.
From the perspective of market competition, DellOro, an authoritative consulting firm in the communication industry, recently released a report showing that Huawei ranked first in the global 5G wireless device market in 2023 with a revenue share of 32%, and achieved its first share increase since 2021; Ericsson, ranked second, saw a significant decline in revenue share in 2023. Focusing on the Chinese market, in 2023, Ericsson ranked fourth in the centralized procurement market share of mobile base stations in China, lagging behind Huawei, ZTE, and Nokia.
In fact, this can also be seen from the centralized procurement data released by major operators in 2023.
Taking last year's largest 5G base station bidding project as an example, at that time, China Mobile publicly tendered and purchased 5G 700M macro base stations and 5G 2.6G/4.9G base stations, with a procurement scale of 23141 stations and 63800 stations, respectively. In the bidding for the 2.6GHz/4.9GHz frequency band, Huawei was the first candidate to win the bid, with a share of 50.04%; The second winning candidate, ZTE Communications, holds a share of 23.35%; The candidate for the third winning bid is Ericsson, with a share of 16.33%. In the bidding of the 700MHz frequency band, Ericsson's market share was far inferior to that of Huawei and ZTE.
According to a comprehensive review by 21st Century Business Herald reporters, Huawei and ZTE won approximately 4.1 billion yuan and 2.07 billion yuan respectively in this bidding, far ahead of Ericsson's winning amount of 630 million yuan.
In addition, Ericsson's own performance is also under continuous pressure. In the fourth quarter of 2023, Ericsson's total revenue reached 28.6 billion Swedish kronor (approximately 19.397 billion yuan), a year-on-year decrease of 19.66%, with a gross profit margin of 39.8%. For the entire year of 2023, Ericsson's total revenue excluding restructuring expenses was 104.4 billion Swedish kroner (approximately 70.805 billion RMB), with a gross profit margin of 39.6%. The sales revenue decreased by 17% year-on-year, mainly due to a 23% decrease in revenue from the network department.
Meanwhile, Ericsson expects the demand for 5G devices to further decline this year. Ericsson's CFO Carl Mellander stated in an interview that the company may further consider cost cutting this year, which may include layoffs.
Cooling down the construction of 5G base stations
While facing fierce competition from competitors such as ZTE and Huawei, Ericsson's own expansion in 5G business has also encountered bottlenecks in market size.
With the continuous acceleration of 5G construction in China in recent years, the 5G era has reached its halfway point. According to GSMA, a global industry organization for mobile communication, as of the end of the third quarter of 2023, 277 operators from 106 countries and regions around the world have launched 5G services, deployed 4.81 million 5G base stations, and the 5G user scale has exceeded 1.42 billion households, with a penetration rate of 16.6%.
At the same time, the marginal cost of constructing a single base station is gradually decreasing. Taking the construction cost of 5G networks as an example, some professionals in the communication industry pointed out to 21st Century Business Herald reporters that due to the physical characteristics of higher electromagnetic wave frequencies, shorter wavelengths, closer propagation distances, and easier signal attenuation, the cost of constructing 5G networks on mainstream C-Band is much higher than 4G with spectrum concentration below 3GHz.
"On the one hand, to achieve the same coverage scale, the required number of 5G base stations must be greater than 4G; on the other hand, the high bandwidth and low latency wireless new air port technology requires 5G to use higher performance processing chips, RF units, and large-scale antenna arrays, further increasing the cost of 5G base stations," the person said.
Taking the Chinese market as an example, a communication industry statistical report from the Ministry of Industry and Information Technology shows that the individual investment in 5G base stations is 2-3 times that of 4G base stations. From 2019 to the end of 2022, the CAPEX (fixed assets investment) of the three operators for 5G networks has accumulated to more than 580 billion yuan, 2.31 million 5G base stations have been built, and the average investment for each base station is 250000 yuan; As of the end of 2019, the total number of 4G base stations in the Chinese market was 5.44 million, and the cumulative 4G network CAPEX of the three major operators reached 506.8 billion yuan, with an average investment of only 93000 yuan per base station.
The global market revenue for wireless access devices in 2023 was $37.8 billion, a decrease of 9% compared to $41.4 billion in 2022, and DellOro expects a further decline of 4% in 2024.
Therefore, as the most important customer of equipment manufacturers such as Ericsson, operators are gradually reducing their capital expenditures and centralized procurement scale.
Previously, China Telecom announced that mobile network investment in 2023 will decline by 2% year-on-year to 31.5 billion yuan, accounting for 31.8% of capital expenditure, a decrease of 2.8 percentage points from 2022. The company plans to have 1.22 million available 5G base stations by 2023.
In addition, China Telecom's broadband network investment in 2023 also decreased by 16% year-on-year to 15.5 billion yuan, accounting for 15.7% of capital expenditure, a decrease of 4.4 percentage points compared to 2022; And its investment in operating systems and infrastructure decreased by 6% year-on-year to 14 billion yuan, a decrease of 1.9 percentage points from 2022.
In terms of China Unicom, although the company has not disclosed the specific capital expenditure structure, it has previously publicly stated that the peak of 5G capital expenditure is mainly concentrated from 2020 to 2022. In these three years, China Unicom's annual network expenditure plan is around 70 billion yuan, of which 5G investment accounts for about 35 billion yuan. The company stated that after a continuous period of 3 years, investment in 5G will begin to decline.
In other words, starting from 2023, China Unicom's investment in 5G construction will decrease.
China Mobile, on the other hand, stated in its announcement that the peak of 5G investment from 2020 to 2022 has passed. This year, China Mobile's 5G network investment plan is about 83 billion yuan, a decrease of about 13 billion yuan from last year; The annual CAPEX (capital expenditure) is expected to be around 183.2 billion yuan, a decrease of about 2 billion yuan from last year. If there are no major special matters, the overall capital expenditure of the company will maintain a gradual downward trend in the next two years, and strive to reduce the proportion of CAPEX to revenue to within 20% from 2024 to 2025.
China Mobile pointed out that the company will comprehensively consider factors such as customer needs, market competition, and investment returns, and plan network investments reasonably to ensure network quality and investment efficiency.
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