Coverage: Ericsson hangs up on its CEO

Swedish telecom company Ericsson fired its chief executive officer on Monday after pressure from major shareholders unhappy with its results.

Sven Nordenstam of Reuters had the news:

Investment companies Investor AB and Industrivarden, with a combined 37 percent of voting rights, had voiced dissatisfaction with Ericsson’s performance, culminating in unprecedented public criticism in February.

Ericsson, which is battling Finland’s Nokia and China’s Huawei, has responded to weak industry demand by slashing jobs and accelerating cost cuts.

But despite this, Ericsson fell short of analyst forecasts for the fourth quarter in a row last week and Vestberg’s leadership and pay have come under close scrutiny.

Ericsson chairman Leif Johansson said the search for a new CEO, which would consider both internal and external candidates, would take “many months”, with Swedish media tipping Anders Runevad, a former long-time Ericsson executive and chief of Danish wind turbine maker Vestas, as a top candidate.

“If we can, we would like to find someone who has (a) good technology background, and of course the more proven that person is in terms of leadership, the better,” Johansson said at a press conference following news of Vestberg’s departure.

Kim McLaughlin of Bloomberg News noted that Vestberg’s turnaround plan for the company failed:

Vestberg’s departure caps a turbulent period for Ericsson, which is cutting jobs while battling fierce competition from from Huawei Technologies Co. and Nokia Oyj. The company said last week it would accelerate cost cuts after reporting four straight quarters disappointing revenue and profit. Vestberg has faced questions on probes into alleged corruption in Asia and Europe, and last week the company rejected a report in Swedish media that it may be inflating sales by booking revenue before some clients are invoiced.

Ericsson advanced as much as 5.9 percent on the news. The stock was up 2.4 percent to 64.95 kronor at 12:51 p.m. in Stockholm. The shares lost about 4 percent during Vestberg’s tenure, compared with a more than 90 percent gain for the Stoxx 600 technology index in the period.

The board’s decision was unanimous, Chairman Leif Johansson said in an interview.

“This was a discussion that has developed over the past couple of weeks so therefore there was no element of surprise,” Johansson said. “We took the initiative to separate.”

With much of the so-called fourth-generation networks already built in the U.S. and China, Vestberg had vowed to improve profitability, but the stock has declined since reaching a more than seven-year high in April last year.

Matthias Verbergt of The Wall Street Journal looked at Ericsson’s competition:

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.