Restructuring has proven to be a difficult task for Swedish vendor L.M. Ericsson, whose board of directors last week unanimously opted to unseat President and CEO Sven-Christer Nilsson.
Alarmed Nilsson wasn’t working fast enough to improve Ericsson’s profitability, the board appointed Chairman Lars Ramqvist to chief executive officer and Kurt Hellstr”m, executive vice president of the Asia Pacific region, as president.
“We are here to speed things up,” said Ramqvist, who led the firm prior to Nilsson’s appointment 15 months ago. “The goal is to get profitability. I’m optimistic we will see results in the fourth quarter.”
Nilsson’s stint as president and CEO was characterized by profit warnings, layoffs and a restructuring program designed to help the company rebound from lagging performance in the handset market and poor economic conditions in Latin America and the Asia-Pacific region.
Ramqvist, in a conference call last week with reporters and analysts, indicated the company’s move to eliminate 14,000 employees-4,000 more than previously announced in December-has moved slowly. It still must layoff 6,500 more people, he said.
“This was a good-news, bad-news announcement,” Jeffrey Schlesinger, analyst with Warburg Dillon Read L.P. in New York, said of Ericsson’s move. “The bad news is profitability is not on track with what they originally said … The net operating results this year and somewhat into next year aren’t going to be what they thought. Now they have the opportunity to bring in someone to run this that is a better leader and able to get these results.”
Ramqvist, who had served as CEO since 1990, and Hellstr”m’s task will be to strengthen the company’s management and fill the vacant chief financial officer position.
“We need to find improvement of the total management structure of Ericsson,” said Ramqvist.
Ericsson reported a negative cash flow and a 51-percent decrease in income in the first quarter compared with 1998, attributing the low earnings to handset sales, which declined 12 percent. Income per share fell 47 percent. Ericsson has seen its handset market share shift significantly to Finnish competitor Nokia Corp., and analysts have criticized the company for not responding to market trends.
“When I left, we had planned to offer the T28 [product line] in late 1998, and in 1999, we have seen a delay of six to nine months,” said Ramqvist. “We will see no further delays here. Obviously this has hurt Ericsson and given a lot of freedom to our competitors. It’s a complex technology, and we missed it on the microchip side. We must improve the pace again in the development.”
Ericsson is trying to hit the market this quarter with powerful super-thin phones based on power technology called lithium polymer. Manufacturers can mold lithium polymer cells into a handset to take on any shape, allowing them to design smaller and sleeker phones without having to worry about battery space, explained Phil Redman, senior analyst with The Yankee Group in Boston.
This T28 product line, however, has proven to be technically challenging. Since the phones have a non-removable internal battery, they run the risk of losing their charge after two years, and customers would not be able to add an additional battery.
“The problem they have been having is with charging cycles,” said Redman. “The battery stops holding the charge or doesn’t recharge to the fullest capacity.”
Lithium polymer technology also has been responsible for starting fires in computers using the technology, said Redman.
