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2016-08-02 08:11:24
Ericsson s boss, Hans Vestberg, departs and his firm s troubles continue
Jul 30th 2016 | PARIS
THE pace of technological change will only increase, Hans Vestberg told a group of visitors to Ericsson s headquarters in Stockholm a few months ago, adding that his company had to learn from innovators . Though Ericsson is a colossus, with two-fifths of the world s mobile-phone traffic passing through its networks, he talked of needing a new business model to take on rising digital rivals providers of software and database services, such as Google and Microsoft. His observations were shrewd, but someone else will have to find ways of putting them into practice. Mr Vestberg lost his job on July 25th.
He ran the firm for six years but repeated efforts to cut costs failed. Ericsson s revenues from selling and installing telecoms networks, its core business, face long-term decline. More bad news came this week when Standard & Poor s, a rating agency, said it was worried about the firm s earnings prospects. Its two main competitors, Nokia (which has completed a merger with Alcatel, of France) and Huawei Technologies, of China, are far more efficient.
More important, Mr Vestberg, who has spent his whole career at Ericsson, failed to produce a radical plan beyond building networks. Shareholders bemoaned low investment in new areas. Since the price of infrastructure, its core business, is going down, Ericsson should invest more in software and services, or management systems for networks, says Rolv-Erik Spilling, a veteran of Nordic telecoms now involved in startups.
Ericsson claims that close to half its sales come from services (though much comes from installing networks). It spends plenty on R&D. But its innovations have brought too few benefits. The firm s shares have flatlined for most of a decade. Bengt Nordstrom, an analyst at Northstream, a telecoms consulting firm, blames cautious leadership by what he calls general practitioner bosses. Ericsson should now pick a leader more inspired by technical or digital matters, and thus better placed to meet competition from Google and other new rivals. The challenge for Mr Vestberg s successor is not only to cut costs, but to find a new purpose. If Ericsson cannot, worries Mr Nordstrom, the company s continued existence could soon come into question.