Earnings down, stock up
1998 had been Ericsson’s best year so far, with a net profit of SEK 13 billion on turnover of SEK 183 billion. Ericsson was described as the most profitable Swedish company in history.
On October 21, 1999, it released a half-yearly report that showed that operating margins and profits had declined considerably against the corresponding period in the previous year, even though invoicing had risen by SEK 16 billion. The company also reported a loss of SEK 73 on every mobile phone it sold but said that prospects were good for mobile internet. The share price rose immediately by SEK 40. Svenska Dagbladet had the following headline:
ALL RECORDS BROKEN WHEN ERICSSON
HYSTERIA STRIKES STOCK EXCHANGE
Journalists and analysts tried to outdo each other in envisaging future scenarios in which the new 3G phones would boost both the company’s profits and the share price. Some spoke in warning, but they were drowned out by the clamor from all those who were going to make their fortunes. This was the climate, not just in Sweden but in many other parts of the world.
When the World Wide Web and GSM telephony had been introduced in the early 1990s, the financial markets had initially shown caution. But with the public offering of Netscape in 1995, that caution was thrown to the winds. Old business models and classical commercial logic ended up on the scrapheap. Now there were new ways of getting rich. In both the US and Europe, new companies were started one after the other, their most important asset being a business idea that involved some reference to the internet or mobile telephony. These were companies that had almost never returned a profit and that would definitely not have been taken seriously a few years earlier, but which now turned into goldmines for their owners.
Even the cautious Swedes become a nation of stock-market speculators, urged on eagerly by journalists and politicians who were themselves speculating on the stock exchange.
The role of the media in the IT euphoria has not yet been properly analyzed. Suddenly there was a cadre of financial journalists. Television channels launched special news programs about equities and finance. Newspapers created special sections and supplements about how to earn a fortune quickly. But these journalists appear to have been absent from class when critical appraisal of sources was on the curriculum.
“The distinction between journalism and the private finances of the journalists seems to have become most unclear at Aftonbladet,” claimed Björn Elmbrandt in his book Dansen kring guldkalven – så förändrades Sverige av börsbubblan [dancing round the golden calf – how the stock market bubble changed Sweden]. “Its columns repeatedly recommended buying stock in Bidlet, an internet auction company, in which a major holding belonged to the newspaper’s venture capital company Hierta Ventures and in which four out of five Aftonbladet employees had signed up for options.”
Veckans Affärer portrayed IT entrepreneur Jonas Birgersson on its front cover under the heading “Unto us a savior is born” and most of the media followed this example in one way or another. Only a few years earlier, discussion of equity prices had been limited to the stock exchange and few blocks around Stureplan in Stockholm. Now the subject was on everybody’s lips – around water coolers, in coffee rooms and on the bus on the way to work.
Politicians in the Riksdag – and there was no major difference between right and left – encouraged this development in both word and deed.
In the summer of 1999, when the Stockholm stock exchange was again breaking all records, the Social Democrat party and the right-wing parties announced that they had finally reached agreement on all the details in the retirement pension reform on which they had come to terms in principle a few years earlier. Hitherto the pension funds had been allowed to invest no more than 15 percent of their holdings on the stock exchange; from now on, the figure would be 70 percent.
The representatives of traditional Swedish industries also jumped onto this runaway train. In the autumn of 1999, Marcus Wallenberg, CEO of Investor, announced that the company was going to invest SEK 500 million in an internet portal called Spray.
Author: Svenolof Karlsson & Anders Lugn