Top team changes at Ericsson as profits fall 14%

Top team changes at Ericsson as profits fall 14%

Ericsson, one of the world’s biggest wireless equipment vendors, responded to poor first-quarter profit expectations today by carrying out a swift corporate re-organisation. Sales fell 2.4% to $6.4 billion (52.2 billion kronor).

In a company statement, Ericsson’s President and Chief Executive Hans Vestberg said: “We understand that there are disappointments. We are taking this issue very seriously.”

Vestberg said: “We will create a leaner, more fit for purpose, organisation to cater to the needs of different customer segments and to faster capture market opportunities. As 5G, the Internet of Things and Cloud drive the next phase of industry development; the time is right to make this change.”

According to Ericsson’s annual report, sales as reported decreased by -2% year-on-year (YoY). Sales, adjusted for comparable units and currency, decreased by -1% YoY.  Sales also declined following weak development in Europe and, the company said, a weak macro-economic environment in some emerging markets.

However, sales grew in North America, mainland China and in South East Asia. IPR licensing revenues grew YoY, mainly driven by recently signed contracts which included certain one-time items. Gross margins declined to 33.3% (35.4%), mainly due to lower margins in Global Services, a higher share of mobile broadband coverage projects in parts of Asia and lower software sales in IP and core networks.

The company’s operating margin increased to 6.7% (4.0%) YoY, driven by improvements in networks, partly offset by lower profitability in global services.

Ericsson immediately removed four senior vice presidents: Magnus Mandersson, executive vice president and head of segment and business unit global services; Jan Wäreby, senior vice president and head of group function sales and Anders Thulin, senior vice president, chief information officer and head of group function business excellence and common functions and Mats H. Olsson, senior vice president and head of Ericsson Asia-Pacific. 

A number of executives were promoted as part of a broad reorganization of the company into five business units and a dedicated customer-service unit.

The promotions were Peter Laurin, head of region Northern Europe and Central Asia, currently head of global customer unit Vodafone; Jean-Claude Geha, head of region sub-Saharan Africa, currently head of business line managed services; Gustav Brismark, chief intellectual property officer and head of IPR & licensing, currently vice president, patent strategy and portfolio.

Vestberg said: "As we move into a new phase of the company development I want to give a special recognition and thanks to those leaving. They have been instrumental in building our market leadership and setting us on our current path of change."

Ericsson’s decision to enter a partnership with Cisco Systems Inc will now come under scrutiny as it appears to have failed to deliver the additional revenue both companies projected. Ericsson suffers with ‘time to market’ issues with product development which the new simplified structure is  designed to alleviate. 

However, this may not be Ericsson’s biggest problem. It is struggling to provide the 5G mobile technology which competitors such as Huawei are making inroads into with quick ‘to-market’ strategies and cheaper products. Ericsson’s troubles will focus more attention on Nokia’s Alcatel-Lucent merger. 

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