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In April, Carl-Henric Svanberg celebrated his second anniversary at the helm of Ericsson. He took over leadership of a company still coming to terms with the massive trauma inflicted by the telecoms crash of the late 1990s, but today, Svanberg is confident of Ericsson's future.

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By  Tawanda Chihota Published  May 31, 2005

|~|CH-Svanberg-CEO200.jpg|~|Svanberg believes that Ericsson has a pretty unique position in being able to offer services and support across all markets in the MEA. |~|In April, Carl-Henric Svanberg celebrated his second anniversary at the helm of Ericsson. He took over leadership of a company still coming to terms with the massive trauma inflicted by the telecoms crash of the late 1990s, but today, Svanberg is confident of Ericsson's future. He tells CommsMEA why this is the case, and how the company intends to leverage its leading position in technology, global presence and operational excellence to remain a dominant vendor in an unforgiving market. “Every month Carl-Henric has breakfast with 20 invited staff members,” an Ericsson employee based at the company's Kista headquarters north of Stockholm, explained. “There is no agenda, staff members just put their names down to attend the breakfast and if they are chosen, they are able to attend and talk with Carl-Henric. They can talk about his enjoyment of sailing, or any aspect of the business, it's very informal,” she added Given the massive retrenchment exercise overseen by former Ericsson president and CEO Kurt Hellstroem four or five years' back, rebuilding a sense of trust and loyalty between staff and management appears to be high on Carl-Henric Svanberg's agenda as head of the largest telecoms equipment supplier in the world. The plan to get workers motivated and feeling proud of their company again appears to be working. Operational results during the 1Q05 were strong, with both top and bottom lines showing year-on-year improvements (though 1Q04 was admittedly a weak quarter), and the vendor attributed much of this performance to 3G network deployments in Western Europe and continued network expansion in the Central Europe, Middle East and Africa region. “Last year saw the addition of 300 million net additions globally. Communication is a basic human requirement and we expect to continue to see strong growth from emerging markets,” said Ericsson president and CEO, Svanberg. Business is looking brisk - in 2004 alone, the vendor shipped an equivalent number of transceivers to 40% of all the transceivers it had shipped in its entire history up to that point, emphasising the strength of network expansion. ||**|||~||~||~|The vendor estimates that 90% of all subscriber growth over the coming five years will originate in emerging markets, including the Middle East and Africa, and Ericsson is banking on leveraging its entrenched position in many of these markets to ramp-up sales. “We have been a company in this region for as long as we remember and that means we can support and help to build out [networks]. Of course there is a lot of 2G that is happening there but new technologies are being evaluated, as well as 3G,” Svanberg told CommsMEA. Managed services, which help augment the sale of equipment and differentiate Ericsson's offering from those of its closest competitors, is also being pursued in a determined fashion in emerging markets. The vendor already has 38 million subscribers under outsourced management worldwide, and with 17,000 staff employed in its Global Services unit, Ericsson is obviously eager to add to that tally. “We are taking advantage of our position in emerging markets where our business is stronger,” Svanberg said. Having gone through the painful exercise of reducing its staff count by half since the height of the telecoms boom in the mid-to-late 1990s, Ericsson is eager to project itself as a highly efficient operation that is seeking to establish long-term partnerships with operators. Speaking at the vendor's Spring Capital Markets Day in Stockholm last month, Ericsson's chief financial officer Karl-Henrik Sundstrom was in confident mood regarding the company's stabilising financial position. “Margins have been higher in percentage terms over the quarters…and we have returned to investment grade, sooner than we had expected,” Sundstrom disclosed. Despite having a strong traditional position in emerging markets the competitive threat from second tier vendors such as ZTE and Huawei continues to loom large. “In our case, when it comes to competition from the vendors in Asia, their competitive edge is selling it (equipment) cheaper. In our case, what we do is secure a long-term plan where we can be a true partner and make communication work for that operator in that country,” Svanberg told CommsMEA. “And I actually believe that we have a pretty unique position in being able to do that almost everywhere in the whole region,” he added. ||**|||~|CH-Svanberg2---CEO200.jpg|~|Ericsson forecasts that 90% of subscriber growth over the next five years will come from emerging markets. |~|Vendor-financing remains a key component of contract wins in emerging markets, with Sundstrom estimating that one in every three contracts concluded by Ericsson in these markets has a vendor financing component to it. “There has been a history of more bad debt in Western Europe and North America than in emerging markets [so we are comfortable with our exposure],” commented Sundstrom. “In emerging markets we work with international credit rating agencies so the risk profile is different to what it was like in Western Europe,” he added. Ericsson believes it possesses three key assets that it is looking to maximise in a bid to stay ahead of its competitors. These are its technological leadership, its global presence, and its operational excellence. In terms of technological leadership, Ericsson does indeed have the largest R&D spend of any vendor in the world, investing more on research and development than the next three or four competitors combined. Ericsson's Mobile Platform unit has also ensured that Ericsson technology is found in most of the WCDMA/3G terminals on the market today. With a presence in 140 countries around the world and a history dating back 130 years, Ericsson's footprint is expansive. Capacity and network expansion opportunities around the globe continue to offer scope for further growth, and emerging market growth remains central to this strategy. Svanberg is keen to point out that gross margins at Ericsson have increased over 15% in the last two years, with operating expenses as a percentage of revenues falling all the time - giving evidence of the pursuit of operational excellence. It is true that Ericsson has made significant progress in making up much of the ground lost as a result of the telecoms crash, but certain areas of its business remain a drain. Last month the vendor announced a ‘streamlining’ of its CDMA division and plans to close its San Diego CDMA headquarters with the loss of 250 jobs over the next 6-9 months. “CDMA will continue to be on the decline,” Svanberg commented, when giving his outlook on that area of the business. Ericsson’s stock price also remains below the levels at which it once traded, with some investors expressing some concern whether this is likely to change in the medium-term. “All the money in mobile telecoms is in handsets, not the equipment side of things. So with Ericsson only owning a stake in it is handset division its hard to see where the growth is going to come from,” a regional private investor told CommsMEA. Svanberg expects to see slight growth in the sector in 2005, having given this guidance at the beginning of the year, though Ericsson is keen to point out that its profit level is now approaching the same level as prior to the telecoms crisis. It remains to be seen when or if the stock price will follow suit. ||**||

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