NEW MAN: Former Assa Abloy boss Carl Henric Svanberg faces the biggest challenge of his career
You might expect Svanberg, now 50, to ease into early retirement. But last month he took over as president and CEO of Ericsson, the sprawling Swedish telecom-equipment maker that's all locked up in a world of trouble. Ericsson hasn't turned a profit in more than two years. It's had four CEOs in five years and has laid off almost half of its once-mighty workforce of 107,000. Why would Svanberg want such a migraine? "The headache is what's so attractive," he told TIME. "I felt prepared to take on a challenge of this magnitude."
The pain intensified last week, when the company reported a loss of $527 million in the first quarter of 2003 — its tenth straight losing quarter. Sales slumped a devastating 30% in the quarter to $3.2 billion, and the company predicted the worldwide market for mobile systems would shrink "more than 10%" in 2003. But Svanberg, looking tanned and fit, managed to simultaneously break the bad news and soothe the markets, in part by announcing a whopping 14,000 new layoffs by 2004. "We remain determined to return to profit during 2003," he said, and Ericsson stock rose 17% that day.
"Svanberg is a big positive," says Bengt Mölleryd of Stockholm's Evli Bank. "He is quite skilled at dealing with both the media and the financial community. He certainly says the right things."
Now he'll have to do the right things, if he's going to catch up with Ericsson's Finnish rival, Nokia, which earned $1.07 billion net profit in the first quarter on sales of $7.4 billion. It managed to do so with fewer employees than Ericsson, by concentrating on the healthiest end of the business. Ericsson gets 80% of its revenue from mobile-telephone networks, which connect one phone to another — and the market for its telecom gear has been dead for two years. But Nokia focuses on mobile handsets, which fly off the shelves at a rate of 500,000 a day.
The Nokia-Ericsson rivalry has an added intensity; it's hard to overstate the national importance of Ericsson. Founded in 1876, it was for many years Sweden's largest business, and a symbol of the nation's remarkable agility in the high-tech arena. But the pride of Swedish industry and the country's leading exporter has become a penny stock. Kurt Hellström, whom Svanberg replaced last month, slashed the workforce from 107,000 in 2001 to 61,000 as the company's turnover went from close to $36 billion to a relatively anemic $12 billion a year. The cause was obvious: mobile-telephone operators spent $200 billion to buy the licenses for third-generation (3G) mobile-phone networks, but ran out of money to pay for the actual technology and dramatically scaled back orders. Like most other telecom suppliers, Ericsson's stock was downsized too: from a high of almost $19 in 2000 to around 96 today.
How does Svanberg plan to turn it around? First, by cutting costs. He pledges to reduce capital expenditures — from $10.78 billion in 2000 to around $4.6 billion — by slashing the workforce to 47,000, less than half its size two years ago. Even with declining sales, he promises a return to profitability by late this year. "Barring any further shocks, they should make it back to profit by the fourth quarter," says Per Lindberg, a telecom analyst at Dresdner Kleinwort Wasserstein in London.
Though locks are relatively low tech, Svanberg — the first outsider chosen to lead Ericsson since 1942 — says he'll succeed by using the skills he picked up at Assa Abloy. "I took over a lot of companies in bad shape," he says. "We were constantly restructuring and I am pretty confident in that area." While Ericsson has been a world leader in designing technology, it has managed manufacturing processes poorly, according to Svanberg. A small, very high-tech portion of the business — customized products for a select group of clients — is like a Michelin-starred restaurant, he says, with a skilled chef and planned menu, while the rest is churning out uniform products. "If you make hamburgers in a Michelin-starred restaurant, you'll find they are more expensive and less tasty than McDonald's," he says.