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By FT.COM
Published: March 28, 2005
Carl-Henric Svanberg, chief executive of Ericsson, does not understate the drama of one of Europe's most spectacular corporate turnrounds. "We had only one bullet, only one shot to make it right," he says.
Three years ago Sweden's industrial flagship, the world's largest supplierof mobile telecommunications networks, appeared on the edge of ruin. The failure of its mobile handset business and the collapse ofcapital spending by indebted telecoms operators had plunged the company into deep crisis.
From 2001 to 2003, it raked up pre-tax losses of over SKr64bn, forcing it to slash its workforce by 57,000 and raise SKr30bn in fresh capital. Its share price fell from a peak of SKr230 in March 2000 to just over SKr3 by September 2003.
Yet in January this year Mr Svanberg was able to report record fourth-quarter operational profits. Ericsson's credit rating has been raised from junk status and, at the annual general meeting next month, the board will propose the first dividend payment since 2000.
Much of the spadework for the turnround was done by Kurt Hellström, Mr Svanberg's predecessor. But since taking the helm two years ago, it is Mr Svanberg who has completed the process and is reaping the rewards. Moreover, it is Mr Svanberg who has to ensure that the transformation of the company continues without the threat of imminent disaster.
"When you have a crisis, the crisis itself becomes one of your biggest assets if that crisis is bad enough. Everyone gets very modest and humble and listens. If you need to do rough things, you do rough things," Mr Svanberg explains.
At the same time as pushing through the cost-cutting programme, Ericsson has had to invest heavily in the coming shift to third generation W-CDMA technology.
Mr Svanberg talks a lot about customers and peppers his conversation with phrases such as "operational excellence". He is at ease with his company and with the media, even though his appointment to the helm caught many by surprise.
He was the first outsider in more than 60 years to head Ericsson; a man with no experience in the telecoms industry and who lacked a power base with either of the company's controlling shareholders the Wallenberg family or the grouping around Svenska Handelsbanken.
Ease around the media which Mr Svanberg's predecessor lacked is an important attribute for any head of Ericsson, and even Mr Svanberg's well-polished manner can struggle under the Swedish spotlight.
One in 10 Swedes owns Ericsson shares directly, with many more holding a stake through mutual funds. Even outside the business press, the company's troubles and successes are front-page news and Mr Svanberg is in constant demand.
The week of this interview, he appeared on a platform with Göran Persson, Sweden's prime minister, to discuss the country's economic progress and the following day addressed a conference on corporate governance. "He has to be careful not to get sucked up by it all. He has enough to do running Ericsson," says one important shareholder.
"My focus is on thecompany," says Mr Svanberg. "If I am out there,it is because I think itis good for Ericsson." That he is a constant feature of the Swedish media is something he cannot control. "An article could be about Ericsson, it could be about Sony Ericsson or about Swedish industry, or about management or just important people. It doesn't matter, I'm there." Just now the headlines have him as a "shining star", and the gossip columns fear he will be poached to head Hewlett-Packard. But such acclaim is fickle. While January's report brought record profits, increased market share and bulging order books, it failed to drive up the share price. Many investors instead focused on the drop in gross margins, a sign perhaps that Ericsson has had to cut its prices to win orders and maintain its 35-40 per cent market share.
Credit Suisse First Boston says the mobile infrastructure market is characterised by "excessive competition". The industry shake-out has failed to materialise; instead, new Asian competitors have added to the crowd. "From an outside perspective it does look odd that there hasn't been consolidation yet," Mr Svanberg says. He attributes the lack of "mega-mergers" to difficulties in gaining real synergies, but that does not mean therehas been no restructuring. While all the companies may still be standing, many have trimmed their product offering, he says.
In recent months, Ericsson's Chinese competitors have been gaining most attention, especially Huawei Technologies, which aggressively chased business in Europe. Its most notable success was winning a contract to build a 3G network for Dutch operator Telfort, an Ericsson customer since 1998.
Mr Svanberg says it is only natural that Asian competitors emerge. "China as a country is determined to build a position in this field and I am sure it will succeed. However, it is a long step from making a particular product to going out into an operator's network and making it work end-to-end.
"If we were only active in Europe and wanted to break into the US, we would do the same thing [as Huawei]: find an operator that is willing to take the risk with us and give them an offer they can't refuse so we can show our capabilities."
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This tactic gives little indication of where the long-term price level will be, Mr Svanberg says. He also questions how much cheaper the Chinese could be. After all Ericsson already has 75 per cent of its supply chain in China and many costs are related to installations in the field that the Chinese would also have to bear.
In other technology sectors, companies have attempted to counter price pressure in manufacturing by shifting into services.
Ericsson is enlarging its services division and in January won a breakthrough contract to manage H3G Italy's entire 3G network. Mr Svanberg says only about 2 per cent of the world's networks are currently outsourced. "We are expecting the services market to grow around 10 per cent or so and we have good hopes that it may be a bit ahead of that."
Despite this, he does not see any great shift in the business model, where about 75 per cent of revenues comes from equipment sales. "Services is compatible with the IBM story, but in their case the equipment side was shrinking and we don't see this as happening." Nor does Mr Svanberg forecast any serious changes in the group's structure. He dismisses suggestions that Ericsson might quit Sony Ericsson, the 50/50 mobile handset venture with Sony of Japan. Being in handsets is vital to understanding the end-to-end solutions that operators want, he says. "If anything Sony Ericsson has become more important to us. The relationship is becoming more strategic."
So with the crisis over, record profits and a dominant market share might Ericsson get smug? Not according to Mr Svanberg. "There is a constant nervousness. This is not a company that is easily complacent."
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Posted: 2005-03-29 19:08:36
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Good show. I don't think a day has gone by recently whereby Ericsson hasn't won a major order. They must be very busy. Even SE grew 54% in 2004. Fantastic.
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Posted: 2005-03-29 19:28:00
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well, imho the technology and rhe great service of the three stripes was way ahead any other brands. in other words, not every of us was ready to use and undersrand that knowledge ;-) /// was, is and will be the best for me! hail sverige and mr ericsson. thank u!
This message was posted from a WAP device
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Posted: 2005-03-29 20:11:08
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amen!
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Posted: 2005-03-29 22:39:52
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@senninha - Nice report! But I guess Nokia will still rule the BIGGEST share of the PIE (chart) this year - 2005 ! No contest !
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Posted: 2005-03-30 03:51:05
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Residentevil Posts: > 500
Definitely back.
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Posted: 2005-03-30 05:10:32
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About Nokia...to me, its like yesterday's "Shining Star"
Just take a look on what Samsung Malaysia managed to capture in mobile phone market for 2004....34%
SonyEricsson might not be able to capture the largest market share here in Malaysia or Asia but for sure they havent reach the limit of growth over in Asia when compare to you know who.
Samsung Malaysia Electronics (SME) Sdn Bhd is targeting a growth of 30% from FY2004’s revenue of US$300 million (RM1.14 billion) driven by mobile phones, mp3 players and televisions, says its managing director Won Jong Duk.
SME, which is the marketing arm for South Korean-based Samsung Electronics Co Ltd’s consumer electronics in Malaysia, last year grew by 20% from a US$250 million revenue and expects to hit US$390 million this year.
“We will be focusing on our mobile phones, mp3 players and television products like the DLP (digital light processing) television and flat panel displays to drive growth for this year,” said Won.
“The electronics market in Malaysia is growing, not in terms of volume but in terms of sales. The prices of electronics have increased sharply and we will take advantage of this growth.”
According to Won, the bulk of Samsung’s growth will still be focused on its mobile phones, which constitute 60% of its total sales.
“Saturation (of mobile phones) is at 60%, which means most people will be looking to changing their entry-level phones for higher-end ones. Samsung is in a strong position to benefit from this growth as we do not sell entry-level models.”
Won also added that Samsung would be targeting 1.2 to 1.3 million units of the 3.5 million-unit local mobile phone market, a 30% increase from last year’s one million units sold. It would also be targeting to increase its market share from 34% last year to 40% this year.
Speaking at the launch of Samsung’s latest mobile phone, the SGH-D500C, Won said for 2005, customers could look forward to similar exciting models with two or three new models within the next three months and a two-mega pixel camera phone in the second half.
The new SGH-D500C carries a recommended sales price of RM2,299 and is expected to hit 5,000 units per month in sales volume.
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Posted: 2005-03-30 10:46:19
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I don't know but does nokia install networks? And lol Samsung don't sell entry level phones lol.
This message was posted from a T630
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Posted: 2005-03-30 11:15:48
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Nokia DO install network but they are not as big as Ericsson.
Samsung does make entry level phone however it is not that popular in Malaysia. You can see people here with a salary of RM1600 (USD400) using a Motorola Razr or Samsung D500 or SE S700i as its a symbol of status rather than using a phone for its need.
[ This Message was edited by: c96sthl on 2005-03-30 10:20 ]
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Posted: 2005-03-30 11:18:26
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/// is the best in fone centers and is active in many other tasks, for more info browse in the /// forum and let u amaze.
This message was posted from a Z1010
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Posted: 2005-03-30 11:21:27
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