Ericsson Chief Departs After Profit Plunge -- 2nd Update
July 25 2016 - 12:12PM
Dow Jones News
By Matthias Verbergt
STOCKHOLM-- Ericsson AB ousted its chief executive as it battles
slowing demand for its cellphone towers and switches, and faces
fresh competitive threats from old and new players alike.
The company said Monday Hans Vestberg, who had led Ericsson
since 2010, was stepping down immediately. The board named
Ericsson's current chief financial officer, Jan Frykhammar, as
interim CEO.
Ericsson shares were up more than 2% in early afternoon trading.
The stock has been down more than 40% since hitting a seven-year
peak in April 2015. Back then, big, western telecom
giants--Ericsson's largest customers--were boosting investment in
equipment, as they rolled out their latest 3G and 4G network
offerings. That spending has since tapered off. Spending is also
falling in emerging economies hit by recent market turbulence.
As demand has dried up, new suppliers have emerged offering much
of the same equipment at cheaper costs. The biggest of those new
players is Huawei Technologies Co., a Chinese firm barely on the
industry's radar when Mr. Vestberg first took the reins at
Ericsson.
Sales to telecom carriers by Huawei, which also makes handsets,
eclipsed Ericsson's total global sales two years ago. On Monday,
Huawei reported a 40% rise in first half-year revenue.
The slowing demand and new competition have reshaped the
telecoms-equipment market in the past few years. It helped drive
Europe's other big player, Finland's Nokia, to acquire
Franco-American giant Alcatel-Lucent in a deal completed earlier
this year.
In response to that tie-up, Ericsson launched an unusually deep
cooperation pact with Cisco Systems Inc. of the U.S., the two
companies agreeing to join forces in fields like research and
development.
Ericsson has also been cutting costs sharply. Last week, it
announced its latest round of job cuts after posting a 24% drop in
second-quarter net profit. It said it aimed to double its
operational savings by 2017 by reducing R&D costs and capturing
efficiency gains from restructuring efforts, as well as from its
partnership with Cisco.
In the first half of this year, Ericsson said it shed 8,000
employees. The cost-cutting disclosed last week would result in
more layoffs among its current 116,500-strong staff, but the
company hasn't provided details.
Ericsson has also been hit by a series of probes into past
business practices. There is no indication that Mr. Vestberg has
been implicated in any of the investigations. Last month, Ericsson
said it was being investigated by U.S. authorities over possible
corruption related to the U.S. Foreign Corrupt Practices Act. It
didn't disclose the nature of the probe, but said at the time the
company strives "to at all times conduct our business in compliance
with applicable laws."
Two days later, Ericsson disclosed that seven of its current and
former employees had been served with summons by Greek authorities
over allegations of possible corruption in relation to a defense
deal that a former Ericsson subsidiary completed with Greece in
1999. Ericsson said it is cooperating with the probe.
Amid all that, Ericsson's board had been contemplating a move to
replace Mr. Vestberg for a while. "This has been talked about and
developed over some period," said Chairman Leif Johansson in an
interview. "Finally the board made a decision on Sunday night."
Mr. Johansson said the search for a permanent replacement for
Mr. Vestberg might take several months, suggesting that the
leadership change "is about finding a strategy to find growth and
value in that whole new situation."
Mr. Vestberg said in an Ericsson statement that as the industry
"enters a next phase...it is time for a new CEO to step in and
continue the work to ensure Ericsson's industry leadership." He
wasn't immediately available for comment.
Mr. Vestberg had recently become a lightning rod for criticism
over his high pay and his preference for private business jets over
commercial travel. That hit a particular nerve in egalitarian
Sweden.
Ericsson's longtime investors, Investor AB and Industrivärden
AB, two Swedish investment firms that, combined, control more than
35% of Ericsson's voting rights, said they supported the move. "It
was a unanimous board decision," said Stefan Stern, a spokesman for
Investor.
Write to Matthias Verbergt at Matthias.Verbergt@wsj.com
Corrections & Amplifications
Ericsson said the cost cutting disclosed last week would result
in more layoffs among its current 116,500-strong staff. A previous
version of this article said Ericsson had a staff of 166,500. (July
25, 2016)
(END) Dow Jones Newswires
July 25, 2016 11:57 ET (15:57 GMT)
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