More urgency needed at Ericsson

More urgency needed at Ericsson

Ericsson’s new CEO, Borje Ekholm, should be acting with more urgency.

The 53-year old engineer was named in late October to lead the crisis-hit telecommunications equipment maker after a 10-year stint at Ericsson’s biggest shareholder, the Wallenberg family’s Investor.

Yet he only officially started working 10 days ago. And at fourth quarter results on Thursday, Ekholm didn’t set out a clear strategy to fix the problems, nor clear financial targets that shareholders can hold him to.

That’s not good enough given the deep issues at the company.

Ericsson swung to a 1,6bn kronor (US$180m) net loss in the last quarter, usually its strongest season, compared to a gain of 6,8bn kronor in the same period last year.

Worryingly, the Swedish company’s gross margin was 29,8% in 2016, a low not seen in more than 20 years.

No new cost cuts were announced despite the fact that Ekholm himself acknowledges more are needed beyond a savings programme started in late 2014.

In fairness, the overall market for telecoms gear was truly dire last year as the big operators including Verizon Communications and Telefonica reduced capital spending by 8%. Capex is expected to fall again this year by low single digits.

With no new generation of mobile technology expected until 2020 at the earliest, the industry is in a fallow period. Ericsson’s main listed rival, Nokia, has been hit hard too.

Ekholm really shouldn’t need much time to get up to speed and formulate a plan: he’s been on the Ericsson board for 10 years. Its problems of having a high cost base and being overly reliant on mobile are largely self-inflicted and well understood.

On Thursday, Ekholm asked investors for patience, saying he preferred to work more internally before laying out priorities to make sure they can be executed. “Bear with us, we’re going to get there,” he said. Shareholders had to bear a 30% share price drop in the past year, so their patience has already been tried.

Ericsson did make one bold move. It cut its dividend by 70% to 1 kronor per share for 2016. At that level, it will cost 3,3bn kronor for 2016, which is reasonable given that cash flow from operations was 14bn kronor.

Hoarding resources isn’t really a choice. More job cuts will be needed and they will cost. Revenue was similar to 2010 levels last year, but the staff is 20% bigger, according to Bloomberg data.

Restructuring ate up 7,6bn kronor last year. The company said that should fall to about 3bn kronor in 2017, though bear in mind that they underestimated last year’s restructuring expenses by almost one third.

Ekholm name-checked hockey star Wayne Gretzky in his statement today, vowing that Ericsson would “focus on skating where the puck will be not where it has been”. Ekholm would do well to imitate another of Gretzky’s strengths: his speed.

Source: — (c) 2017 Bloomberg LP (Via Tech Central)



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