Ericsson Chief Departs After Profit Plunge -- Update
July 25 2016 - 4:21AM
Dow Jones News
By Matthias Verbergt
STOCKHOLM-- Ericsson AB Chief Executive Hans Vestberg is
stepping down, the Swedish telecom-equipment maker said on Monday,
as it struggles to remain profitable in face of slowing market
demand and fierce competition.
Ericsson shares rose following the announcement and were up by
more than 5% early Monday, having lost about one-third of their
value over the past year. The company is mostly being hit by a
slowing demand for its wireless network gear, its core business, as
many telecom operators have completed large last-generation
broadband projects and several emerging markets contended with slow
economic growth.
"Hans Vestberg steps down as President and CEO and member of the
board of directors of Ericsson with immediate effect," the company
said, leaving all his assignments. Jan Frykhammar, the current
chief financial officer, will assume the CEO position until a new
person is in place, Ericsson said.
"In the current environment and as the company accelerates its
strategy execution, the board of directors has decided that the
time is right for a new leader to drive the next phase in
Ericsson's development," said Leif Johansson, chairman of the
Ericsson board.
Mr. Vestberg's departure comes as Ericsson, one of the world's
largest telecom gear makers, faces stiff competition and continued
weak product demand in most of its markets.
On July 19, Ericsson announced further cost reductions and job
cuts after posting a 24% drop in second-quarter net profit. It said
it aims to double its operational savings by 2017 by reducing
research and development costs and capturing efficiency gains from
a new company structure, as well as from its partnership with Cisco
Systems Inc.
At the same time, the company is struggling to keep up with its
Nordic rival Nokia Corp. and Huawei Technologies Co., the rapidly
growing Chinese network equipment maker that has been offering
innovative products at competitive prices.
Ericsson is betting on the development of fifth-generation
wireless networks, but analysts say it might take years before
telecom providers start upgrading their networks to 5G.
In response to demands from telecom providers to offer a broader
range of equipment, Ericsson last year struck a partnership with
Cisco, allowing Ericsson to expand its product range to include
fixed gear, a market that is still growing, without having to
develop it itself.
Ericsson's longtime investors, Investor AB and Industrivärden
AB, which both control more than 35% of Ericsson's voting rights,
last week concluded Mr. Vestberg had to step down, according to
Swedish business daily Dagens Industri.
Sverker Sivall, a spokesman for Industrivärden, said the company
supported the Ericsson board's decision. A spokesman for Investor
couldn't immediately be reached for comment.
Despite Mr. Vestberg's departure, Ericsson's board said it fully
supports the cost reduction plans and the new company structure
Ericsson implemented earlier this month as part of a broader
reorganization into five business units and one dedicated
customer-service unit.
Last week, Mr. Vestberg said the cost cuts will result in
additional layoffs among Ericsson's 166,500 employees world-wide,
without specifying where or how many might be affected. In the
first half of this year, Ericsson lost 8,000 employees as a result
of cost-saving programs, he said.
Ericsson said it has initiated the search for a new CEO and that
the process will include both internal and external candidates.
Mr. Vestberg became CEO at the start of 2010, after a career as
Ericsson manager in various positions abroad, and having taken on
the role of CFO since 2007.
Mr. Frykhammar has held various positions in finance and
business control since entering the company in 1991. In 2009, he
became executive vice president and CFO. In that role, he will be
replaced by group treasurer Carl Mellander.
Write to Matthias Verbergt at Matthias.Verbergt@wsj.com
(END) Dow Jones Newswires
July 25, 2016 04:06 ET (08:06 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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