Telefonica To Cut 15% of Jobs in Spain, Buy Ericsson’s 5G Equipment – Report

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Telefonica (TEF) has reached an agreement with labor unions in Spain that will result in a 15% cut in its domestic workforce. Reuters reports that the voluntary redundancy plan will cost the Spanish wireless company $1.7 billion. In addition, the company has bought 5G equipment from Ericsson (ERIC). TEF stock fell 0.23% to close at $4.37 on December 28.

Telefonica is a Spanish company that offers mobile and fixed communication services. It currently maintains operations in Europe and Latin America. Telefonica’s earnings report for Q4 2021 is scheduled for February 24, 2022.

Job Cuts 

The plan to cut about 2,700 was reached as the company looks to position itself in a highly competitive market. The company’s regulatory filing indicates it could save up to 230 million euros from 2023. Telefonica should also bounce back to positive cash flow generation due to labor cost savings.

The voluntary job cuts will mostly affect employees born before 1967 and those with at least 15 years of employment in the company. The telecommunication company had initially planned to spare business units dedicated to cybersecurity, marketing, and artificial intelligence as part of the restructuring.

Ericsson 5G Equipment 

Separately, Telefonica has moved to replace some of its Huawei 5G network gear. The replacement is part of the company’s strategy announced in 2019 that seeks to diversify suppliers. The acquisition of Ericsson’s equipment comes at a time when Huawei is at the center of a bitter standoff between the U.S. and China.

Washington has alleged that the Chinese government could use Huawei equipment for espionage purposes. In its defense, Telefonica insists that the diversification of its suppliers is purely technical in nature and does not have any evidence to support the allegations lodged by Washington.

Stock Rating

Last month, Berenberg analyst Carl Murdock Smith downgraded TEF stock to a Hold from a Buy. According to the analyst, the company has margin issues in Spain.

Consensus among analysts is a Hold based on 1 Buy, 2 Holds, and 1 Sell. The average Telefonica price target of $4.76 implies 8.92% upside potential to current levels.

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