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Ericsson restructuring plan to create ‘leaner’ company

Hans Vestberg

Hans Vestberg

Ericsson’s share price slumped 14% yesterday after the company announced a quarterly drop in sales and restructuring plans designed to create a “leaner” firm.

Announcing its first quarter 2016 results, Ericsson said that its overall plan is to “drive efficiency and growth even harder across the company”. It also outlined a shakeup to its executive leadership team that included the departure of three senior executives.

“We will create a leaner, more fit for purpose, organisation to cater to the needs of different customer segments and to faster capture market opportunities,” said Ericsson president and CEO, Hans Vestberg.

For the quarter net sales were down 2% year-on-year to SEK52.2 billion and quarter-over-quarter they dropped 29%. However, net income was up 45% year-on-year to SEK2.1 billion.

Ericsson said that a “continued weak macro-economic environment impacted sales negatively in some emerging markets in the Middle East and Latin America.” Sales in Europe were also down, primarily due to “the completion of mobile broadband projects in 2015.”

Alongside its quarterly earnings announcement, Ericsson announced leadership changes that included that departure of: senior vice-president and head of group function sales, Jan Wäreby; senior vice-president, chief information officer and head of group function business excellence and common functions, Anders Thulin; and senior vice-president and head of Ericsson Asia-Pacific, Mats H. Olsson.

Wäreby will retire from Ericsson as of November 30, 2016, while Thulin and Olsson will both leave the company on July 1, 2016.

At the same time head of region North America, Angel Ruiz, and executive vice-president and head of segment and business unit global services, Magnus Mandersson, will leave the executive leadership team on July 1 and take new roles within the company.

“As 5G, the Internet of Things and Cloud drive the next phase of industry development, the time is right to make this change,” said Vestberg, discussing wider structural changes at the company.

“The new structure will have five business units and one dedicated customer group for Industry & Society, in line with the company focus on core business, targeted growth areas and cost and efficiency. The changes will make it easier for our customers to do business with us, whether they are operators, media companies or other industries.

“We are not satisfied with our overall growth and profitability development over the past years and I am convinced this will make us more competitive and enable us to grow both our company and our earnings.”

Ericsson said it aims to achieve net annual savings of SEK 9 billion during 2017 relative to 2014. It added that total restructuring charges for 2016 are estimated to be SEK 4 billion to SEK5 billion compared with a previous estimate of SEK3 billion to SEK4 billion.