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Vestberg's Seeds May Yet Bear Fruit for Next Ericsson CEO – Analyst

Ray Le Maistre
7/26/2016

Hans Vestberg's IP and M&A strategies may have been found wanting, but the former Ericsson CEO, who left the Swedish vendor on Monday, had many strengths as well and was at the mercy of macro market forces, believes an experienced industry analyst. (See Ericsson Ejects CEO Vestberg.)

Gabriel Brown, senior analyst at Heavy Reading , says there's a good chance Vestberg has paved the way for an upturn in Ericsson AB (Nasdaq: ERIC)'s performance in the coming years, despite recent disappointments. (See Ericsson 'Doubles' Savings Goal as Sales Slump.)

"In large part, Vestberg's hands were tied by the market. Mobile broadband equipment sales are cyclical and subject to intense price competition. We've known this for years and no one should have expected him to be able to solve that," says Brown.

But, as pointed out by other commentators, things could have gone better in terms of Ericsson's IP strategy -- which was built around the 2007 acquisition of Redback Networks -- as well as Ericsson's M&A strategies. (See Ericsson Board Has Been Asleep at the Wheel – Consultant and Ericsson Offers $2.1B for Redback.)

"Clearly the investment in the IP router division doesn't look like such a great move. The Cisco partnership was the nail in the coffin there, but many people had pretty much written it off as an expensive 'me-too' move a while beforehand," notes the Heavy Reading man.

He adds: "The acquisition strategy was uninspiring. The company added headcount with every deal, but there was nothing really transformational. You could sort of see the logic in acquiring mature video/TV businesses like Technicolor's Broadcast Services Division, RedBee Media and Microsoft MediaRoom, but they didn't exactly set the heart racing. He was perhaps both too cautious and too profligate." (See Euronews: Ericsson Buys Media Services Firm, Ericsson Buys Microsoft's IPTV Unit and Euronews: Ericsson to Buy Technicolor Service Biz.)


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Vestberg, though, has been "a good communicator and clearly he understood the business challenges of Ericsson's customers and could articulate plausible solutions. It was the market, as much as any actions that he or Ericsson collectively could have taken, that determined the outcome. Short of the nuclear option -- a major merger along the lines of Nokia's purchase of Alcatel-Lucent, or even a sale of the business -- Ericsson is bound by operator demand."

But clearly there are actions a CEO can initiate to counter market trends and conditions, and Brown believes Vestberg has laid some foundations that the next CEO could build upon. "I suspect that, in the tradition of Ericsson CEOs, Vestberg has planted some seeds his successor can harvest. In this case, Heavy Reading has heard from multiple sources across the industry that Ericsson has been competing hard on price during the past nine to 12 months in an effort to win market footprint and capitalize on the Nokia/Alcatel-Lucent merger disruption. This hasn't come through in time to save Vestberg, but his replacement may benefit from a decent revenue and margin bump down the line," says Brown.

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

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