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Ericsson Board Has Been Asleep at the Wheel – Consultant

Ray Le Maistre
7/25/2016

In ousting its CEO, Hans Vestberg, following a dip in the vendor's fortunes, Ericsson has fallen into the trap of being reactive rather than reading the market and acting early, according to an experienced telecom industry consultant whose résumé includes a stint at the Swedish vendor. (See Ericsson Ejects CEO Vestberg.)

Bengt Nordström, currently the CEO at consultancy Northstream and who worked at Ericsson AB (Nasdaq: ERIC) from 1983 to 1989, believes the Swedish vendor has failed to capitalize on its unique position in the industry and has also been too reactive rather than proactive to changing market conditions.

He says that, just like in 2009 when the vendor's board replaced Carl-Henric Svanberg with Vestberg, the move was a reaction to market pressure and investor unrest. "The board has acted too slow the past two times. With a new CEO you need to see material progress after three or four years," and, if there isn't any evidence of progress then start a new search. Vestberg had been Ericsson's CEO since the start of 2010, having been announced as the incoming chief in mid-2009. (See Ericsson CEO Steps Down.)

Nordström believes Ericsson should have seen how the mobile networks sector was going into decline and started cutting back harder and faster. Instead, the Swedish vendor has been adding new staff through acquisitions at about the same pace as it has cut jobs and has not trimmed its portfolio to be an efficient company, says the Swede.

"Operator revenues are not growing… much of the infrastructure to connect 90% of the world's population is already in place, so there is not much left to build out -- what is left is mostly capacity addition. China and the US have upgraded quickly from 3G to 4G and that made telecom look like a growth industry when it wasn't. Ericsson has been better placed than nearly every other company to understand that but it hasn't reacted accordingly," believes the Swede.

The incoming CEO, who is unlikely to be a current Ericsson employee -- "There is no [credible] internal candidate," -- needs to be someone who understands the telecom industry. That's important, believes Nordström, as each technology sector has its specific needs and requirements and has its own demands from customers. "I hope they don't appoint a general practitioner, he adds, noting that Ericsson needs a CEO that understands the telecom market dynamics and can see where it's heading.

"The new CEO needs to know what to keep… Ericsson has been doing a lot of acquisitions and it needs to decide what to hold on to. Some of those acquisitions have not been strategic -- some of them have been just to please key customers," believes the consultant, though he declined to specifically identify which acquisitions he believes have not added real value.

Some of the key decisions for the new CEO will be related to the management of Ericsson's key strength, namely its radio access systems unit -- "That needs to be more agile," -- and around Ericsson's IP strategy. "Huawei has its own IP portfolio and now Nokia has its own following the Alcatel-Lucent deal. Ericsson only really has its partnership with Cisco -- how to handle that is a key issue and you need a CEO with a good industry understanding to make the right decisions on that." (See Cisco + Ericsson: From Soup to Nuts.)


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Nordström also questions the investments (acquisitions) Ericsson has made in the video technology sector -- "How big is that market for Ericsson? What have the acquisitions delivered?" -- and the company's strategy of keeping its products and Global Services (managed services, integration etc) separate. Ericsson recently announced a new structure that brings products and relevant services together but "having them separated for many years has caused problems -- Ericsson has spent too much time on internal issues caused by that separation and not enough time on customers," he believes.

All in all, then, the incoming CEO faces a very tough challenge, according to the Northstream man. "This is not an easy hire. The infrastructure business is tough -- it's not an easy market for anyone," even including Huawei, which is still reporting growth, he notes.

The key thing for the Ericsson board is to make a decision and appoint a new CEO as quickly as possible, because the company is effectively on hold until the new chief comes on board.

And for Nordström, that new CEO needs to be someone who is not seduced by what might look like the next big thing. "The numbers associated with IoT are big" -- tens of billions of devices by 2020 -- but that doesn't necessarily mean it's going to be a big market for the network operators or the vendors," he warns.

— Ray Le Maistre, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, Editor-in-Chief, Light Reading

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linkedin72741
linkedin72741
7/26/2016 | 3:30:53 PM
Re: 5G?
As a former Ericsson insider, I think Vestberg generally installed a good vision and sound strategies, but I guess he ran out of time to install a fundamental organisational culture shift desperatly needed.  It's going to take a lot more than a new CEO to turn things around. From my humble perspective the company's e2e execution is too often inflexible and bloated, rendering it slower than rivals and raising internal costs. Keeping services and product distinct is a good example, but the issue is deeper and rooted across the organisation throughout several processes (and yes, some crusty corporate drones who lack vision and guts).  Decisions by concensus involving multiple layers.  As much as Ericsson ican pride itself on having great internal systems, it is these very systems that have become delibitating.  
DanJones
DanJones
7/26/2016 | 11:01:30 AM
Re: 5G?
Hardly, a lot of the initial 5G spend will be in US, so, no Huawei.
mendyk
mendyk
7/26/2016 | 10:26:58 AM
Re: 5G?
It will if everyone else rolls over and gives up.
sowen557
sowen557
7/26/2016 | 10:24:45 AM
Re: 5G?
Wont most of this spend on 5G go to Huawei?  
mendyk
mendyk
7/26/2016 | 9:26:47 AM
Re: 5G?
Nortstrom's points about probable sources of internal inefficiencies sound valid, but then again, they are points that can be made about any large organization. And it's hard to identify a board of directors that isn't overly fond of long naps -- counting bags of money rather than sheep.
Ray@LR
[email protected]
7/26/2016 | 9:18:08 AM
Re: 5G?
I would say there's a good chance that Nordström might find himself in the minority in some of his views.

But he sees the market as one that is only shrinking in value.

If it proves to be otherwise, I'm sure there will be more than a few of his countrymen pointing that out to him...
mendyk
mendyk
7/26/2016 | 9:06:31 AM
5G?
Ray -- Given what is almost certain to be a massive reconstruction of mobile networks with 5G, and the expectation that almost everyone on the planet will be a mobile user by the end of the next decade, it's hard to see how this sector can be characterized as one that has already peaked.
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