At 7.30 am on October 16, 2007, Ericsson issued a press release. This contained a profit warning and an invitation to a press conference at 10 am. Ericsson’s operating profit for the third quarter would be SEK 5.6 billion instead of the SEK 9.2 billion that analysts had expected. Operating margins had dropped from around 20 percent to a bare 13 percent.
Journalist Birgitta Forsberg later wrote in Affärsvärlden:
On Friday, October 12, the catastrophe was a fact … What was worse was that the core operation, sales of mobile telephone networks, is what had collapsed. The management spent the entire weekend examining this information from every angle and on Sunday Carl-Henric Svanberg rang the chairman of the board, Michael Treschow, to inform him. He then went on to ring the rest of the board.
On Monday morning, Kalle Sundström collected the very latest figures. The management spent the entire day in a crisis meeting and in the morning Henry Sténson and the company lawyer, Carl Olof Blomqvist, went to the Stockholm Stock Exchange to inform it of the position.
“It was my firm conviction that we were obliged to issue a profit warning,” was Svanberg’s comment to Forsberg.
At 6 pm on Monday evening, the board convened. Svanberg, Sundström and Kurt Jofs had to present their explanations. Then Svanberg, Sundström, Sténson and the press officer, Åse Lindskog, spent half the night going through what was going to be presented on the following day.
SHARE PRICE DROPPED
Not unexpectedly, there were heated reactions. Ericsson’s share price dropped by 24 percent on the day of the profit warning. And the media now saw a chance to describe Svanberg as a loser.
Later, at a seminar moderated by journalist Henrik Frenkel, Svanberg gave his own picture of his reaction on October 12: “It felt indescribable. But the way I work is instinctively to go for the ball. There was no point in sitting on a log in the forest and sighing.”
He immediately gathered his closest colleagues. They then worked around the clock for three days trying to come to grips with the situation. “We could see straight away that it was not worth wasting a second on discussing the figures; time was too precious for that. I have been around too long to believe that it was embezzlement or anything of the kind.
“The second thing was to realize that within 72 hours we had to understand what had happened and be able to explain it in ten seconds on the news and in half an hour at a press conference. And most importantly, we had to understand what had happened in a way that would still make sense in a year’s time as well.”
In Contact, Svanberg explained that over the past year Ericsson had gained substantial market share. Openings had been established with new customers, which had meant rolling out a large proportion of new networks. Deals like these, however, have lower margins than expanding or upgrading existing networks.
Svanberg: “The entire loss came in the second half of September. There were fewer orders than expected from the US, the UK and Italy … And when it came to our expansions and upgrades, we had been slightly spoilt by the great stability we had had for 18 quarters in a row. This meant we were not paying as much attention as we should have been.”
Author: Svenolof Karlsson & Anders Lugn