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.)
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, , Editor-in-Chief, Light Reading