NEW MAN: Former Assa Abloy boss Carl Henric Svanberg faces the biggest challenge of his career
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The company retains some strengths. While the market for mobile-phone networks has declined by 60% in the past two years, Ericsson continues to be the leader of what's left of the market. It holds a 40% market share for GSM networks, which are used in most countries today, and has a similar share of the WCDMA market — the 3G phones which are now available in parts of Europe and Asia — ahead of Nokia's 30% (the other major player is Germany's Siemens).
Yet being the leader of a market that's declining is unlikely to make shareholders happy. Where Ericsson predicts a decline of "more than 10%" in mobile systems this year, Nokia is projecting a 15% contraction. (Nokia cut 1,800 employees, about 10% of its network workforce, last month.) Everybody in the network business is hurting.
Competing against Nokia in the handsets business won't be easy for Ericsson, since that business hasn't been kind to the company. Five years ago it had 16% of the market for mobile handsets, close behind Nokia and Motorola, but in recent years it has seen its market share shrink to around 5%. "We didn't have enough handsets in the mass market, and our competitors did," says Per-Arne Sandstrom, Ericsson's first executive vice president. "We were coming with a lot of telecom knowledge but the consumer competency of Ericsson was not part of the legacy."
The company made a stab at borrowing some consumer savvy in October 2001, by creating a joint venture with Sony, master of the PlayStation and the Walkman, to manufacture and market hipper-looking handsets. But the combined Sony Ericsson is also having trouble. Handset sales in the quarter ended March 31 were 5.4 million, down 400,000 from the previous year, causing a net loss of $108 million. Under the terms of the joint venture agreement Ericsson might be forced to inject another $380 million, money it can hardly afford.
Sony Ericsson has come up with some exciting products, such as its P800 phone, a cool combination of a telephone handset and a personal digital assistant — which costs a cool €650. But Ben Wood, a London-based analyst at Gartner Dataquest, says the company is still not making inroads in the lower end of the mass market, where Nokia is king. "It is absolutely failing to live up to expectations," he said. South Korea's LG Electronics sold more handsets than Sony Ericsson in the first quarter, pushing Sony Ericsson down to an embarrassing sixth place in world market share after Nokia, Motorola, Samsung and Siemens. The company has announced four new phones for this year, including one aimed at the low end of the market, while Nokia has introduced 17 new models.
Svanberg admits the next phase of restructuring will be the hardest for the company, because the danger now is of cutting muscle as well as fat. He needs to win over labor unions for the new job cuts he has just announced and convince investors that there is light somewhere ahead. Above all, he needs to keep his promise to return the company to profit for the first time in three years, no matter how steeply sales decline. "One of my fundamental principles: as a manager you must know your job," Svanberg says. "You must know your company, your technology, your numbers and your competitors. You have to do it all and that takes a while." He had better be a quick study.