Ericsson loses CEO, but Vestberg will not make radical changes

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Ericsson loses CEO, but Vestberg will not make radical changes

By CAROLINE GABRIEL

Published: 25 June, 2009

READ MORE: Ericsson

Ericsson's CEO Carl-Henric Svanberg is to step down at the end of the year, moving to be chairman of UK oil giant BP at a crucial time of transition for the Swedish firm. Svanberg will be replaced by current CFO and executive VP Hans Vestberg, a signal that the vendor is looking to minimize disruption and keep its strategy largely unaltered.

There seems to be a trend going on in Europe - former Nokia CEO Jorma Olilla now also heads up an oil company, Anglo-Dutch Shell. Svanberg will be sorely missed at Ericsson, even though his standing with the markets has never entirely recovered from a shock profit warning of late 2007. But that is overshadowed by the powerful place in which he has placed the Swedish behemoth. He joined the firm in 2003 when it was in dire straits after the telecoms crash, and put in place a radical turnaround that has positioned it so strongly that the current downturn has touched it far less than its traditional rivals.

Perhaps the biggest compliment to the CEO's effectiveness is that Ericsson is anointing a key member of his team, with a clear message that the new chief will deliver more of the same. This is in marked contrast to rivals such as Alcatel-Lucent, Motorola and of course Nortel, which have been forced by competitive circumstances and the weak economy to tap CEOs to engage in radical new plans.

Not that Ericsson doesn't face major challenges, notably from the rising competition from Huawei and ZTE, and the price pressures on its core infrastructure market. Despite the profit warning in the fall of 2007, Ericsson has weathered the downturn strongly and consolidated its huge market lead in the GSM/W-CDMA sector, plus making early progress in LTE. But it needs to take some risks too. While its decision to stay out of the megamerger game played by ALU and Nokia Siemens has largely been justified by its current stability, it has to broaden its business, and is pursuing growth in managed services, IP services delivery, convergence and carrier software.

A key task facing Vestberg, who takes over on January 1, will be striking this balance of consolidating existing businesses and taking new paths. Ericsson chairman Michael Treschow said the company would continue on the same strategic path, but needs to become stronger in services and managed networks. "Organic growth will be the basis for our business going forward, with bolt-on acquisitions where needed. We're also still aiming for a turnaround in our handset joint venture Sony Ericsson," Treschow said at a press conference.

The 44-year old Vestberg became CFO in 2007, in the wake of the profit warning, which led to the resignation of former CFO Karl-Henrik Sundstroem. He is described by analysts as well liked and well respected, and is an Ericsson veteran of 20 years, having held management positions in China, Sweden, Chile, Brazil, the US and Mexico during his career.