"Crisis" at Ericsson

Much was now written about the “Ericsson crisis” and there was just as much exaggeration of Svanberg’s failure as there had been previously of his success. Ericsson was said to have lost control of both its internal and external communications. In the light of their self-assumed authority, the business journalists demanded Svanberg’s resignation. Business news website E24 launched a competition ‘Who goes first?’ in which readers could vote for Svanberg, Treschow or Sténson.

In a wager on which CEO of a listed Swedish company would be the first to resign, bookmakers Unibet at one stage offered 1.7:1 on Carl-Henric Svanberg. 

Even the analysts were critical. The angriest voice at the press conference on October 16 belonged to Helena Nordman-Knutson, one of the analysts at investment bank Öhman Fondkommission, Helen Ahlbom wrote in Ny Teknik. Nordman-Knutson had recently raised her sales forecasts for Ericsson on the basis of a statement by Svanberg at a financial market strategy day in London on September 11, 2007.

What had Svanberg really said in London? Every statement made at a meeting of this type is recorded word for word by Ericsson and is available on the company’s website. Ahlbom reviewed the transcript of the verbal exchanges. The central issue related to a question from an American analyst.

“During the past 12-18 months, you have been talking about an acceleration in mobile data traffic. But we cannot see any positive effects at all on your sales. Are they in the pipeline? Or will these effects only emerge gradually during a period that could stretch from four to five years – which in that case would mean that sales will not accelerate?”

This was Svanberg’s response: 

“This is not easy to know. But the way we see things is that it [a pick-up in mobile data traffic] is really happening now. Whenever we speak to an operator there is discussion of the increase in data traffic and how it gives rise to bottlenecks here and there. We have just confirmed the forecast [for 2007] in connection with our second quarterly report and traditionally we do not provide any forecast for the coming year until our report for the third quarter.

“We have stated in our reports recently that historically this is an industry with moderate growth and that we have good arguments for believing that we are reaching these levels again. But when this will happen depends on the operators.

“Remember as well that 60 percent of our sales are still in GSM and that you would have to have a pretty hefty rise [of 3G sales as a result of the increased data traffic] for it to affect total sales.”

Ahlbom summarizes: “In other words, Svanberg did not promise any rise in the forecast. But as analysts and journalists try to interpret information before it is issued, the share price rose by 5 percent.”

On October 25, Ericsson made an announcement that many in the media interpreted as the sacrifice of a pawn: CFO Karl-Henrik Sundström left the company, to be replaced by Hans Vestberg, who in turn was replaced at Global Services by Jan Frykhammar.

Author: Svenolof Karlsson & Anders Lugn

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