The importance of profit has been demonstrated with terrifying logic by the fate of the American telecom vendors. Early in 2009 it became clear that Nortel was on the verge of bankruptcy. For Ericsson this raised the CDMA issue once again. Who was going to take care of Nortel’s deals with American customers that had based their networks on CDMA technology? After all Ericsson had closed down its CDMA operations only a few years earlier and it still had the expertise‚ and this played an important role in the LTE project.
After bidding at the end of July 2009, Ericsson acquired the parts of Nortel’s network division that worked with CDMA and LTE technologies for just over USD 1 billion. Its main competitor in the bidding was Nokia Siemens Networks. About 2,500 of Nortel’s employees were taken over with the acquisition, which significantly enhanced Ericsson’s presence in North America.
“Nortel is not the only one. Lucent, Tellabs and even Motorola are mere shadows of their former selves,” wrote Jocelyn Philbrook in Global Telecoms Business in August 2009.
When, after their unparalleled growth in the 1990s, the North American telecom vendors emerged from the “nuclear winter” of 2000–2001, they were all left with organizations that were inefficient, introverted and barely capable of innovation – and a mindset focused on acquisitions, Philbrook writes. “One of these giants is said to have had five fixed-to-mobile convergence projects on the go at the same time, with none of them knowing about each other.”
The factors that helped Ericsson include, in her opinion, its ability to operate over a wider geographical area, its focus on mobility and its development of the GSM standard. In comparison, when John Roese took over as head of technology at Nortel in 2006, he discovered “that more than half of the company’s multimillion dollar budget was allocated to products with declining growth curves.”
‘OUR COMPETITORS TOOK ON TOO MUCH’
Åke Persson, who spent considerable time working for Ericsson in North America, views the disastrous fates of the North American companies as a consequence of CDMA’s failure to win large volumes.
Another of Nortel’s mistakes, in Persson’s opinion, was taking on too much of its customers’ financing, which eroded its own balance sheet. “In comparison, Ericsson’s board was restrictive, which we should be thankful for today. It was not nice having to say no but today we can see that our competitors often took on too much.”
Another difference: “At Ericsson we went through our ordeal from 2001 to 2003. But we never abandoned any country. On the other hand the American companies withdrew from one country after another. We were building for the future in a different way from our American competitors.
“And then we must not forget that as a Swedish company Ericsson is in most contexts politically acceptable. In some parts of the world that has been an advantage.”
Author: Svenolof Karlsson & Anders Lugn