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FEBRUARY 7, 2003 NEWS ANALYSIS A Fresh Eye for Ericsson's Ongoing Woes New CEO Carl-Henric Svanberg is a telecom outsider who'll have to make the tough choices needed to turn around the Swedish giant
His departure gives Michael Treschow, who took over as chairman of the troubled company in 2002, another opportunity to make a major move in Ericsson's ongoing makeover. Treschow doesn't want to run Ericsson day-to-day, but he is gradually assembling the pieces that he hopes will make it a winner once again. Last summer he staved off bankruptcy by heroically raising $3.5 billion in new equity from investors. In an ideal world Treschow might have brought in a non-Swedish executive to a company that is, after all, a big player in a global industry. Still, Treschow may have found the right person for the job. His choice of Carl-Henric Svanberg, 50, CEO of lockmaker Assa Abloy, looks like a decent bet. Svanberg is considered a strong manager, who extracts value for shareholders. In a testament to Svanberg's reputation, Assa Abloy's stock dropped sharply on the news that its CEO was leaving. Ericsson's rose 4.5%. A BOARD DIVIDED. As a telecom outsider, Svanberg will bring a fresh eye to a company that hasn't benefited appreciably from the management of seasoned telecom pros. Ericsson seems to have oodles of execs with deep telecom knowledge -- but perhaps less-than-stellar management skills -- to give Svanberg advice. "If it's true that you can learn from your mistakes, then you have a vast pool from which you can benefit" at Ericsson, says Sten Westerberg, senior adviser at investment bank Nordea Securities in Stockholm. People who know Svanberg say he's independent -- a rarity among Swedish executives who are often associated with one or other of the big industrial or investment groups that dominate the country's businesses. This quality may give him a better chance at dealing with the divisions on Ericsson's board that have made life miserable for some of his predecessors. Ericsson is co-controlled by Investor, the holding company of the Wallenberg family, and Industrivarden, a wing of Handelsbanken, a major Stockholm bank. The two groups often don't see eye to eye, at times hamstringing the company at the board level. Svanberg faces enormous challenges. Hellstrom was vilified in Sweden for initiating tens of thousands of job cuts that ultimately failed to stem the losses. Despite two years of cost-cutting that slashed jobs by almost half, to less than 64,000, Ericsson continues to bleed red ink. It announced on Feb. 3 that it lost $1.46 billion for 2002 on sales of $17 billion. With a $270 million loss, the fourth quarter was the ninth straight money-losing quarter. WEIGHT SHIFT? Signs of improvement in the hard-hit industry are hard to find. Orders for the fourth quarter fell to $3.57 billion -- down 23% from the year before. Until demand for mobile telecom systems and infrastructure stabilizes, Svanberg is going to have to cut more and smarter. He'll most likely be frustrated occasionally by the ownership structure, which gives the two major stakeholders close to 80% of the votes with only 11% of the equity. The two groups own most of the A shares, which carry 1,000 times the voting rights of B shares, the type held by most shareholders. Treschow is trying to persuade the two big owners to accept a shift to a 10-1 weighting, which would still leave them in control. Treschow doesn't have a deal yet. And B-share investors dislike the notion that the biggest shareholders, whom many blame for Ericsson's predicament, should be compensated for giving up voting power. Svanberg clearly has his work cut out for him. And going forward, the burden will be on the biggest shareholders, who have already seen tens of billions of dollars of market value evaporate, to support the painful steps Treschow and Svanberg recommend. Plenty is at stake, not the least of which is the successful rebound of one of the world's largest telecom players.  By Stanley Reed in London Edited by Beth Belton Get BusinessWeek directly on your desktop with our RSS feeds.  Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | FEBRUARY |
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