Jelefonica (EFT) reached an agreement with unions in Spain that will result in a 15% reduction in its national workforce. Reuters reports that the voluntary departure plan will cost the Spanish mobile company $1.7 billion. Additionally, the company purchased 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 fourth quarter 2021 earnings report is scheduled for February 24, 2022.
Job cuts
The reduction plan of approximately 2,700 was achieved as the company seeks to position itself in a highly competitive market. The company’s regulatory filing indicates it could save up to €230 million from 2023. Telefonica is also expected to rebound with positive cash generation from labor cost savings.
Voluntary job cuts will mainly concern employees born before 1967 and those with at least 15 years of seniority in the company. The telecommunications company originally planned to spare business units dedicated to cybersecurity, marketing and artificial intelligence as part of the restructuring.
Ericsson 5G equipment
In addition, Telefonica has decided to replace some of its Huawei 5G network equipment. The replacement is part of the company’s strategy announced in 2019 which aims to diversify suppliers. The acquisition of Ericsson’s equipment comes at a time when Huawei is at the center of a bitter confrontation between the United States and China.
Washington has alleged that the Chinese government may use Huawei equipment for spying purposes. In its defense, Telefonica insists that its supplier diversification is purely technical in nature and has no evidence to support the allegations filed by Washington.
Stock Valuation
Last month, Berenberg analyst Carl Murdock Smith downgraded TEF stock to a Hold from a Buy. According to the analyst, the company has margin problems in Spain.
The consensus among analysts is a hold based on 1 buy, 2 holds and 1 sell. Telefonica’s average price target of $4.76 implies upside potential of 8.92% from current levels.
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