Revenge on the stock exchange

Media reports after Ericsson’s profit warning in the autumn of 2007 said CEO Svanberg found himself facing tough questions about the poor standing of Ericsson’s share price – in particular after Sony Ericsson also issued a profit warning, in March 2008.

The quarterly report issued in April 2008 again had a powerful impact on the share price. Compared with the previous year, Ericsson’s earnings had declined from SEK 8.2 billion to 4.3 billion and its operating margin from 19.3 percent to 9.7 percent. But this time the share price rose sharply by 25 percent. There had been a bear market for Ericsson’s shares and after all the speculation, expectations were low.

Ericsson’s board had naturally been shown the figures just before publication and was of course curious about how the stock exchange was going to react. “They were almost taking bets in the board,” IF Metall’s Jan Hedlund recalls. “But nobody believed the price would rise as much as it did.” 

The fact the earnings were known before the date they were due was one effect of the improved monitoring routines. Svanberg says: “As soon as we know what the figures are, we have to make them public. And that is also important to reduce the risk of leaks.” 

The remaining three quarters of 2008 also finished with no signs of any major crisis for Ericsson; earnings each quarter were better than the analysts had expected. 

Svanberg said in his comments on the results: “We are part of a society that is developing. We all use communications; this has been a major breakthrough for mobile broadband. We all run around with our smartphones and laptops; a lot is happening and this will continue.” 

Nevertheless, when the annual report for 2008 was published, Ericsson announced a new savings program: there were to be savings of a further SEK 10 billion and the number of employees cut back by 5,000 during 2009.

Author: Svenolof Karlsson & Anders Lugn

© Telefonaktiebolaget LM Ericsson and Centre for Business History

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