The bubble bursts
On March 7, 2000, share prices began to drop. They quickly went down, then up, and then down again. In five weeks in March and April, the NASDAQ lost a total of 37 percent of its value. Never before had such a major index dropped so rapidly after a historic high.
The general index on the Swedish OM exchange dropped by just over 20 percent in six weeks during the late spring of 2000. Ericsson sank like a stone. Some individual IT stocks went down 30–60 percent.
On April 12, 2000, the Swedish Riksdag decided on the new investment regulations for the general pension funds, which meant that Swedish retirement investments could be invested in equities. Two days later the New York stock market collapsed.
The mass media urged calm. Dagens Nyheter asserted “nobody needs to worry that [the decline in share prices] indicates a financial downturn”. Svenska Dagbladet claimed that “it is not particularly dramatic for the stock exchange to correct itself sometimes”. Affärsvärlden maintained that a drop of more than 25 per cent was “improbable”.
But this sound advice went unheeded by stock exchanges all over the world. European telecom operators watched their share prices suffer a ruthless decline and with them the value of their companies, while at the same time their coffers were empty as a result of the 3G auctions. This gave them no choice. They had to cut back on investments drastically. The impact on suppliers was immediate.
On October 20, 2000, the price of Ericsson’s shares plummeted. Dagens Industri changed its tone and, as is often the case, the news was proclaimed in doomsday headlines:
BLACK DAY FOR ERICSSON
FURIOUS SHARE TRADING
Despite these extreme fluctuations, 2000 was a record year for Ericsson, with a total turnover of SEK 273 billion, 58 billion more than the previous year. Net profit was SEK 21 billion, another record. A total of SEK 42 billion was devoted to research and development, yet another record, and the workforce totaled 105,000 employees, still another.
And 2001 began with the usual optimistic statement by the chairman of the board, Lars Ramqvist. On March 12, 2001, however, a profit warning was issued. The growth forecast for the first quarter was reduced from 15 percent to no change. Share prices dropped 21.5 percent before the day was over and now the media’s criticism knew no limits.
The brave new world that once beckoned had become unrecognizable. So had the Ericsson conglomerate. Little more than a year after Sven-Christer Nilsson’s major re¬organization at the end of 1998 and beginning of 1999, another reorganization was announced in the spring of 2000 “to deal with the pace of technological development.”
The three business segments that had recently come into being were superseded by six business divisions. The existing operator segment was divided into two, with mobile solutions becoming a division in its own right, Mobile Systems, and being given a strong focus on the emerging 3G technology. Also new was the Data Backbone & Optical Networks division, which had its head office in Boston. This was to focus on the development of IP technology and optical networks.
In parallel with 3G, Ericsson now had high hopes for the internet. For this reason a new Internet Applications & Solutions division was created. This was to supply IP-based applications, services and solutions for mobile and fixed networks. Initially it was to have a staff of 3,000, based mainly at Kista, but was predicted to expand to 6,000 within a year.
The group management team also grew and a new staff function for business development was set up. This meant the executive team now totaled 21. “No problem” was the comment of the architect behind the reorganization, Torbjörn Nilsson, because the group management was to focus mainly on policy and strategic issues while also acting as a forum for the exchange of information.
But this new organization had hardly been launched before new changes were made in October 2000. One was to post Åke Persson to San Diego, Qualcomm’s home town, to run the American CDMA standard that Ericsson had taken over as part of the patent agreement the year before. At the beginning of 2001, the Internet Applications & Solutions division was divided in two, with Internet Applications changing its name to Core Unit Service Networks & Applications, to make it clear that its operations also included the development of platforms for services.
These were just a few of the changes. It was just about impossible to keep track of all of them.
Author: Svenolof Karlsson & Anders Lugn
Flemming Ørneholm with his retirement present: a collection of colorful mobile phone casings, of the type he realized Ericsson needed to invest in.