Swede Success

What a difference three years make. When Carl-Henric Svanberg became president and CEO of Ericsson in April 2003, the traditional Swedish telecoms equipment supplier was haemorrhaging cash and Svanberg was immediately called upon to continue overseeing the difficult task begun by his predecessor of culling Ericsson staff. On his first official visit to the Middle East last month, Svanberg spoke to CommsMEA about just how different the climate now is for Ericsson compared to those dark days.

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By  Tawanda Chihota Published  March 21, 2006

|~|Svanberg200.jpg|~|Svanberg has helped turn Ericsson around in a surprisingly short period of time, and is now focussing on consolidating the company’s market position. |~|Ericsson’s first quarter results for the year 2003 were announced just weeks after Carl-Henric Svanberg had moved into the president and CEO’s office at Ericsson headquarters. If he were in any doubt about just how significant a task he faced in trying to prevent Ericsson from disintegrating following a few years of heavy losses and cutbacks, the decisions and announcements he was required to make in support of the quarterly financial at the end of April 2003 were sure to have set him straight. Orders booked during 1Q03 to end-March amounted to US$3.25 billion after deduction of cancellations, representing a 35% decline year-on-year. Compared to the 4Q02, orders booked declined 12%. Sales during the period amounted to US$3.1 billion, representing a decline of 30% on a sequential basis, and a year-on-year decline of 30%. Svanberg also announced another round of jobs cuts at Ericsson – this time resulting in the loss of 13,000 jobs. By the end of 2003, Svanberg would go on to report to shareholders that Ericsson had reduced its workforce from 107,000 to 51,600 employees in just three years. “Well I would say, the first priority when I came in was to save the company,” Svanberg tells CommsMEA candidly. Incredibly, just three short years on, and Svanberg believes Ericsson is returning to levels of financial strength matching the peak of the pre-telecoms crash of late last century. “I think in fact we have maybe never been more successful in Ericsson’s history (than today) when it comes to profitability and our position.” Svanberg speaks openly of what he believes to have been Ericsson’s weakness at the time of the telecoms crash. “We have been around for 130 years so we are very well established in many markets all over the world. We live and die on this and therefore when the telecoms crisis came there was no option, there was no party that could save us and I think that made it necessary to really drive the change very forcefully and to adjust the course very quickly and really turn every stone on how we work and so on,” explains Svanberg. “And that is when we decided to work really hard with a global presence, with a view never to sacrifice the support you give to a customer. Secondly that we would not compromise on technology leadership so even if we are bringing down costs, we would not sacrifice technology leadership. And thirdly, we came to work very hard and still are on something we call operational excellence, that every single thing we do in the company should be done in the most efficient way it could ever be because we know if we are as efficient as possible, we can always face competition.” The present-day success that Ericsson is enjoying is confirmed by its rebounding financial clout, which is allowing the company to make opportunistic acquisitions, such as the purchase of Marconi in the UK for cash. In October last year, Ericsson announced its intention to acquire strategic parts of Marconi’s telecommunications business for US$2.2 billion in cash. The deal closed in January and Ericsson estimates that the Marconi assets that it has acquired will generate sales of around US$1.83 billion for 2005. In contrast to the period when Ericsson was forced to shed jobs, this transaction saw approximately 6,660 Marconi staff transferred to Ericsson in January 2006. As Ericsson continues to build upon its current momentum, Svanberg suggests that further acquisitions are likely going forward. “(My priority at Ericsson) has now become more a matter of establishing better capabilities for the convergence between fixed and mobile networks, that is where Marconi also came into play, where we keep on feeding in smaller acquisitions to fill product gaps we have, and so on,” explains Svanberg. Riverstone Networks may be another such “smaller acquisition” that Ericsson is in the position of considering making in order to fill a product gap in. Riverstone is a US-based provider of carrier Ethernet infrastructure solutions for business and residential communications services, and last month announced that it had received a US$178 million offer from Ericsson to purchase substantially all of the company's assets in connection with its bankruptcy asset sale. In February, Riverstone and Lucent Technologies signed an asset purchase agreement in which the stated purchase price was US$170 million, subject to certain potential adjustments. At the same time, Riverstone announced that it had filed a petition under chapter 11 of the U.S. Bankruptcy Code, and that it intended to conduct an auction for the sale of its assets. The deadline for submission of bids was March 16, and Riverstone received no bids other than the Ericsson offer by the deadline. At the time of going to press it was not confirmed whether Ericsson had been successful. Ericsson is expected to report its 1Q06 quarterly results for the period to end-March on April 21, and it can be expected that those figures will be significantly different to the ones reported for the same period back in 2003. Last year’s financial results reflected just how much progress Ericsson has made, with full-year sales up 15% year-on-year, and net income up by 39%. Cash flow for 2005 amounted to US$2.56 billion, reflecting the strong business performance, while net cash at Ericsson grew by US$1.37 billion to almost US$7 billion during the year. 1Q06 results are expected to show the effects of seasonality, but are still expected to be generally robust. ||**|||~|Svanberg2200.jpg|~|On Carl-Henric Svanberg’s first visit to the Middle East in an official capacity, he said he saw scope for managed services and 2G/3G deployments in the region.|~|If the difficult years following the telecoms crash tarnished Ericsson’s name, the supplier appears to have gone a long way in restoring operator confidence in its ability to be a technology partner of choice par excellence. In December last year, Ericsson announced it had entered into an exclusive managed services partnership with the UK’s 3 network operator. Under the agreement, Ericsson is responsible for the management of the 3 network and its IT infrastructure in the UK. The deal marked the largest managed services partnership contract signed by Ericsson to date and one of the largest ever signed in the industry. Under the partnership, 3 retains ownership of the network and IT assets, as well as responsibility for the strategic direction of the network and IT infrastructure. Ericsson is responsible for the management, operation and performance of that network and IT infrastructure. A supply of equipment, additional technology and related services, is also part of the future relationship. The seven-year partnership was the first agreement of its type in the UK though Ericsson has managed services partnerships already in place with 3 in Australia and Italy, where it manages 3’s multi-vendor networks and service delivery environments, and in Sweden where it manages 3’s messaging platform. As well as taking charge of the management, maintenance and expansion of 3’s network and IT infrastructure in the UK, Ericsson is responsible for the ongoing radio network rollout, the maintenance of the existing 6,300 radio sites and the management of the core network and operations centre. Over 1,000 3 employees from the network and IT functions have also been transferred to Ericsson. “I think now as we go on, what will also be exciting is the fact that we are also growing services a lot, which is becoming a major part of our business, so that has become a big priority and you see the deals we made in Italy and UK, that are really adding value and scope,” says Svanberg. Ericsson has also been making significant progress in the Middle East region, where Svanberg explains that the vendor enjoys a larger market share in this market than it does globally. Despite having been disappointed by not being awarded part of the initial contract to work with the UAE’s second operator du, Ericsson remains generally satisfied with its market position in the region. “We have been in the Middle East region for 50 years,” Svanberg says. “We have 1,600 employees present in the region and our leadership in terms of technology and support is unmatched.” Bo-Erik Dahlstrom, head of Ericsson Middle East believes that Ericsson’s ability to partner with operators in the region in order to add more capabilities to their networks is one of Ericsson’s biggest strengths. The supplier just last month announced entering a strategic deal with UAE incumbent Etisalat, exceeding US$50 million in value to expand the network and offer professional services to Etisalat, enabling it to cope with further growth in its subscriber base. “We have a long relationship with Etisalat, and this helps us to better understand the operator’s objectives and requirements,” says Dahlstrom. Relationship building plays a large roll in Svanberg’s strategy, as he equates entering infrastructure contracts with beginning a 10-year marriage, in which both parties would prefer the relationship to last. “You do not go into work together to roll out a network to change supplier three years later, that’s very difficult and painful. So you really do not want to do that, and you want to work with someone that you know will be around for a long time and you know will provide you with the technology and the expertise and support when you need it. There I think we have a good position,” says Svanberg. Pushing technology leadership and operational excellence now stand as Svanberg’s key priorities and he is determined to set Ericsson apart from its competitors on the basis of these two elements. Ericsson believes it has established a leadership position in solutions such as IMS and HSDPA, and the supplier is keen to leverage this leadership at a time when many operators are contemplating how best to migrate their networks. “We have really come to a leading position in IMS and HSDPA and we have also placed a lot of emphasis on having the most stable, highest quality networks in the world,” Svanberg says. “Now that we have 3G and HSDPA, all the things that you can do with music and TV and so on needs software, that is where IMS comes into play, that is where we need different charging systems and software for actually handling all of this content. That in itself is an exciting area so all this content and opportunities and software are put immediately to use in 3G.” ||**||

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