Ericsson Ousters CEO After Poor Results

Ericsson parted company with its chief executive Hans Vestberg on Monday, a move led by major shareholders after a series of disappointing results.

Vestberg, who had served longer than his three predecessors, had come under fire in recent months from Swedish media questioning his leadership and pay, particularly after weak results in April knocked 15% off the shares in one day.

Speaking at a press conference Ericsson chairman Leif Johansson said he expected the search for a new CEO, which would consider both internal and external candidates, to take “many months”.

“If we can, we would like to find someone who has good technology background, and of course the more proven that person is in terms of leadership, the better,” Johansson said.

Ericsson’s shares were up 3% at 1230 GMT, having lost 21% so far this year.

“Clearly the company doesn’t have a quick fix or back up plan given the search for a new CEO is just starting, but the removal of the CEO we thought would be taken well by the market as a positive first step.” Neil Campling, Head of TMT Research for Northern Trust Capital Markets, said in a note.

Analysts said sharper cost cutting and acquisitions could help the firm better compete with rivals Nokia and Huawei in an industry trying to cope with weak demand.

As opposed to the deep restructuring in past years at rivals Nokia and Alcatel-Lucent which recently merged, Ericsson’s cost cuts have been gradual, with additional measures announced at the two past quarterly reports on top of a big cost cutting programme in place since 2014.

Vestberg’s departure comes days after the company announced like-for-like sales declined for a seventh consecutive quarter amid falling demand for its core products.

Ericsson has been investing in new product areas, but so far these have been insufficient to compensate for falling sales of mobile infrastructure.

The past quarter was the fourth in a row where either operating profit or sales or both fell below analyst forecasts.

Ericsson’s shares have fallen 47% from a peak last April, while Nokia ‘s are down 31%. However, since Vestberg took the helm, Ericsson shares have fared better than those of its Finnish rival.

PRESSURE FROM OWNERS
Ericsson’s biggest owners, investment companies Investor AB and Industrivarden, had both expressed dissatisfaction with its performance in past months.

In an unprecedented public barb and in a sign of increased activism from Industrivarden, the investment firm’s first female CEO, who now sits on Ericsson’s board, said in February Ericsson needed to boost profitability.

Meanwhile, Vestberg had also faced criticism in the media for his use of a corporate jet to sports events and for taking on the role as chair of Sweden’s Olympic Committee (SOC) at a time when Ericsson was slashing costs and rejigging strategy.

Ericsson is the fifth Swedish bluechip company in which Industrivarden has a stake to change its top chief since early last year.

Spokespeople for the main shareholders said they had supported the decision of the board, on which they have several seats. Investor spokesperson Stefan Stern said the board’s decision had been unanimous.

Chief Financial Officer Jan Frykhammar was named Ericsson ‘s acting chief executive while the company searches for a successor to Vestberg, CEO since 2010, who leaves immediately. Frykhammar does not want to permanently take on the role, Ericsson said.

Swedish media have tipped Anders Runevad, a former long-time Ericsson executive and chief of Danish wind turbine maker Vestas, as a top candidate to take the helm.

“As a Vestas investor you’d have reason for concern that Runevad would have a hard time turning down an offer from Ericsson,” said Sydbank analyst Jacob Pedersen.