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Ericsson Ejects CEO Vestberg

Ray Le Maistre
7/25/2016

Hans Vestberg has been replaced as Ericsson CEO following a string of poor financial results and a slide in the company's share price. The CEO role has been handed temporarily to CFO Jan Frykhammar while the Swedish vendor looks for a permanent replacement.

Suggestions that Vestberg was under pressure have been circling the industry for a few months, prompting Light Reading to note that July, and in particular the second-quarter financial performance, could be make or break for the executive. (See Trouble at Ericsson: Can the CEO Survive July?)

It turned out to be break. Having seen its share price slump by about 25% during 2016, Ericsson AB (Nasdaq: ERIC) last week reported a dip in revenues and margins for the second quarter, prompting additional cost-cutting measures and a call from major investors for a change in leadership. (See Ericsson 'Doubles' Savings Goal as Sales Slump and Eurobites: Pressure Grows on Ericsson's CEO.)

Those factors have now cost Vestberg, who has been at the vendor for 28 years and in the CEO chair since the beginning of 2010, his job. An official announcement from Ericsson on Monday morning quoted chairman Leif Johansson as saying:

    Hans Vestberg has led the company for seven years through significant industry and company transformation. Hans has been instrumental in building strong relationships with key customers around the world and his leadership and energy have been an inspiration to employees and leaders across Ericsson. However, in the current environment and as the company accelerates its strategy execution, the Board of Directors has decided that the time is right for a new leader to drive the next phase in Ericsson's development.

As CEO, Vestberg could see that a focus on traditional telecom operator network infrastructure and associated professional services was not viable in the medium and long term and, in an effort to transform Ericsson into a broader IT and communications hardware, software and systems integration services supplier, he has overseen Ericsson's significant expansion (mostly via acquisitions) into the video/media and OSS/BSS sectors. Under his leadership, the vendor has also been heavily involved in the industry's virtualization and 5G developments, while he also brokered the landmark partnership with Cisco, announced in late 2015. (See Ericsson CEO: Cisco Merger Not On the Cards and Cisco + Ericsson: From Soup to Nuts.)

But those efforts have not enabled Ericsson to grow its non-traditional revenue streams fast enough to make up for the current decline in the company's mobile network infrastructure revenues.

Ericsson's share price gained more than 4% on the Stockholm exchange Monday morning to hit 66.00 Swedish Krona following the news of Vestberg's departure.

Ericsson's recent financial performance has been in sharp contrast to one of its main rivals, Huawei Technologies Co. Ltd. , which today announced a 40% year-on-year increase in revenues for the first half of 2016. (See Huawei Reports 40% Rise in H1 Revenues.)

Huawei's business mix (thriving smartphone and enterprise IT businesses) is somewhat different to Ericsson's major focus on communications service providers (CSPs), but Huawei still reported unspecified "steady growth" in its CSP business.

Another of Ericsson's fierce rivals, Nokia Corp. (NYSE: NOK), has a business model that is closer to Ericsson: it reports its second-quarter earnings on August 4.

Now, of course, the big question is: Who will become the new permanent CEO at Ericsson and can they turn the Swedish company around?

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

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James_B_Crawshaw
James_B_Crawshaw
7/25/2016 | 5:04:49 PM
Re: Who are the prime candidates?
Yes, Investor AB is a vehicle for the Wallenberg family and has 21.5% of the votes. AB Industrivarden is another Swedish investment group with 20.1% of the votes. Between them they will decide whether to:

a) Bring in a CEO from another Swerdish company where they have significant influence

b) Bring in fresh blood from outside the Swedish business community

c) Try to persuade Cisco to buy Ericsson

 
Faisal Khan
Faisal Khan
7/25/2016 | 3:00:35 PM
CFO Taking over?
A CFO that takes over temporarily to fix things is a always a sign of more lay offs and moves to right size a company.

Best of Luck, ERICSSON
mendyk
mendyk
7/25/2016 | 1:25:37 PM
Re: Who are the prime candidates?
True -- there's no perfect way to handle this situation. If the outgoing CEO was deemed ineffective, then her or his handpicked successor isn't likely to be well received. Still, when you have this kind of uncertainty at the top, you're almost guaranteed to have a couple of more quarters of less-than-stellar performance. In cases where lackluster results have more to do with external market conditions than management ineptitude, that kind of stall isn't helpful at all.
brooks7
brooks7
7/25/2016 | 12:44:54 PM
Re: Who are the prime candidates?
I worked under a lame duck CEO and it is a power vacuum anyway.  His voice did not matter as everyone knew he would be gone soon.  No matter how you do it, these are hard things.

The best alternative is when a CEO cultivates his replacement on his/her staff.  The thing is that when this is true they are probably good and there is no reason to replace them.

seven

 
mendyk
mendyk
7/25/2016 | 11:33:07 AM
Re: Who are the prime candidates?
It's worrisome when an organization gets rid of its leader without having identified and secured a replacement.
Gabriel Brown
Gabriel Brown
7/25/2016 | 9:54:04 AM
Re: Who are the prime candidates?
Investor angst...

Doesn't it basically come down to how Investor AB is feeling? The Wallenberg family controls something like 20-odd percent of the voting rights in Ericsson.
Ray@LR
[email protected]
7/25/2016 | 9:23:34 AM
Who are the prime candidates?
Once the results were out and there was talk of investor angst, Vestberg's position was untenable.

Who will want to take his place though - anyone have any good suggestions?
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