CEO Börje Ekholm is steering his company in the right direction, but he needs to pick up the pace
It is a little over a year since Börje Ekholm was named Ericsson’s new CEO and not quite 12 months since he officially took the reins, and so far, based on this week’s capital markets day at least, he doesn’t have much to show for it.
Apart from doom and gloom, of course; there has been plenty of that this year. In fact, if that was Ericsson’s bread and butter, it would be toasting a successful 2017. It isn’t though. Selling network equipment is, and as we learned this week, the market for that is even more stale than Ekholm first thought.
"The starting point has become more challenging and therefore it will take some additional time than originally planned for," was Ericsson’s way of explaining on Wednesday why it will miss its operating margin target of 12% by 2018.
As well as foreign exchange movements, the problem seems to be that those pesky mobile operators rolled out their new 4G networks, and then stopped rolling them out, almost as if thousands of new cell sites do not need to be deployed in perpetuity.
For some reason, this slowdown in network spending seemed to pull the rug out from underneath Ericsson. On top of that, the company is faced with renegotiating, or negotiating its way out of, a raft of loss-making managed services contracts.
Consequently, Ericsson has been trying to restructure and cut its way back to profitability, which translates to redundancies and reduced activity in R&D and adjacent sectors, most notably broadcasting and media.
Ekholm’s predecessor Hans Vestberg didn’t move fast enough to right the ship, stepping down in July 2016. For some, Ekholm needs to pick up the pace as well.
A person in the know, who spoke to Total Telecom on condition of anonymity, said they are pleased with the general direction in which Ericsson is moving, but concerned at how long it is taking to execute its new strategy.
They are not the only one.
Christer Gardell, managing partner at Cevian Capital, which owns 7.3% of Ericsson, said in a Reuters report this week that he wants "to see a significantly increased execution pace" as well as steeper cost cuts.
Meanwhile, Total Telecom’s source is also worried that Ericsson’s outlook for the network market is still too optimistic.
The vendor expects the addressable market for its Networks business to shrink by 2% next year and by 1% in 2019. It expects the market to be flat in 2020.
However, our source expects operators to be focused more on cost efficiencies than capital-intensive projects, like network rollouts, for the foreseeable future.
This week also saw the departure of two more long-serving Ericsson executives in Jan Frykhammar and Magnus Mandersson, who joined the company in 1991 and 2004 respectively.
Total Telecom understands that they, along with Vestberg, were the three men principally responsible for the strategy that led Ericsson into the mess it is currently trying to dig its way out of.
With those three out of the door, a restructuring underway, and a more realistic outlook about Ericsson’s prospects over the coming few years, it appears that maybe Ekholm has more to show for his first 10 months in charge than we first thought.