Profitability over 100 years
Ericsson’s earnings trend around the turn of the 20th century was relatively stable. A normal profit after allocations and tax was about SEK one million, corresponding to about SEK 50 million in 1999 prices. During the late 1890s, the company made significant investments in new technology, which improved Ericsson’s sales potential in international markets. Sales outside Sweden became particularly important, since Televerket, the Swedish PTT, elected to purchase both telephones and switches from its own production unit.
In addition to the Nordic countries, Great Britain and Russia emerged as Ericsson’s most important markets. By the turn of the century, the transformation of Ericsson into an international enterprise had begun. A production plant had been opened in St Petersburg, which was followed by new plants in Europe and the US. With the acquisition of AB Telefonfabriken from Stockholms Allmänna Telefonaktiebolag (SAT), Ericsson’s market grew in scope both nationally and internationally.
By the early 1910s, Ericsson’s profitability had improved, with annual profit rising to a level of nearly SEK three million prior to the outbreak of World War I. This corresponded to about SEK 100 million in 1999 prices. Inflation during the war years, however, resulted in a gradual deterioration of profits.
The merger with SAT in 1918 did not have any major impact on the company’s profits over the short term, but over time, Ericsson’s market was expanded and a more active technical development effort became possible. Costs associated with the merger of Ericsson and SAT, as well as the loss of the Russian market following the 1917 revolution, contributed to holding down profitability. Like many other companies, the merged company also experienced problems in conjunction with the deflationary crisis from 1920 to 1922.
Investments in new markets contributed to keeping profits down during the 1920s, but during the final years of the decade, profits rose to nearly SEK 8 million, corresponding to about SEK 170 million in 1999 prices. Ericsson suffered serious economic problems during the 1930s, however, in conjunction with the Kreuger crash. The difficulties that the company experienced at that time were not in the areas of production or marketing, but rather of a financial nature and manifested themselves as an acute liquidity crisis.
The years following this liquidity crisis were characterized by efforts to consolidate and strengthen the company. The company’s capital had been largely depleted through write-downs and write-offs of receivables from the Kreuger group and through adjusting the values of foreign shareholdings and other assets. As part of the efforts to restore the company’s long-term stability, the value of the share capital was decreased. During the years up until 1937, profits were low and dividends were not paid to shareholders.
During World War II, Ericsson’s production was further diversified, while operations were linked more closely to the requirements of Swedish society. On the whole, Ericsson’s profitability developed satisfactorily after the problems experienced during the early war years had been overcome. Development after the war was characterized be greater stability than previously with respect to both ownership and financial results.
Rapid global economic growth had a positive impact on the market, and Ericsson’s increasingly strong financial position allowed the company to invest in technical development, including a new switching system, and active marketing. Because Ericsson succeeded in increasing its share of the growing international telecom market, conditions were also created for a more stable growth in profits. Business development was particularly favorable for both the company as a whole and for the parent company during the 1960s, when both order booking and profits increased rapidly, primarily due to European orders.
During the final decades of the 1900s, Ericsson’s earnings trend was characterized by major fluctuations. It started on a sour note with the oil crisis and ended in triumph with the tremendous success of mobile telephony.
Author: Text: Mats Larsson
Karl Fredrik Wincrantz, president of LM Ericsson 1925-1930.
Stabilized rectifier of the model BMC 90031 (regulated through a transductor).
Mobile phone, T10S, 1998