ERIC Ericsson

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 Industrivä rden AB, which combined 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 Industrivä rden, 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 07:25 ET (11:25 GMT)

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