When we joked last week about calls for the head of Ericsson CEO Hans Vestberg’s, we had no idea it would all happen so soon. But once investors disenchantment raised its’ head, these things can be very fast.
Vestberg chose wisely to step down, effective immediately, but of course by uplifting the current CFO into the role, a common enough thing to do, there can be no new strategic directions until the new CEO is in place. There has been something of a dead cat bounce on the stock, as it recovers just enough to acknowledge Vestberg’s sacrifice.
Vestberg leaves after 7 years in charge and 28 years at the company, and will not want for work we are sure. The company will continue what accountants do well – cut costs, and wait for someone to come up with a bit more of a vision. We also joked that they should call for Stephen Elop, but expect a local man, from a neighboring industry, with top credentials. However, the ship will need righting aggressively, so such a man could name his price.
We know that if Ericsson and its current investors have their own way, Ericsson is likely to remain independent, and we only talked up the presence of Cisco as a likely acquirer due to the radical fall in the value of Ericsson.
In one of its periodic slumps, it will become pragmatic, focused and results-driven. That pattern was seen in 2003 when Carl-Henric Svanberg took over as CEO, inheriting an Ericsson in far worse straits than it is now. He went through a massive restructuring and set the course of an “IPification” of Ericsson, and left company transformed when he moved on in 2009.
Something similar is needed now because the industry has started to transform once again, and it is times of change that CFOs as leaders become liabilities – with the rise of SDN, virtualization, more IP and the too early race for 5G, Vestberg has been nothing like his predecessor and has just steered the ship straight, at a time when great rival Huawei has grown by leaps and bounds.
If existing accounting practice investigations or a further weak quarter, shake the foundations again, its value may drop below that magic $20 billion, whereupon even wrapping in a significant premium to the stock, it could be bought for far less than the sum of its parts – say $25 billion. And at that price not everyone would resist. The new boss will have 2 quarters, perhaps 3 before his touch must be felt, or investors will leave in numbers.
On the video side, if Ericsson had managed to turn around its Mediaroom acquisition more rapidly, it may have found it could have become stronger at companies like Deutsche Telekom, but that’s one powerful operator which has found it likes dealing with Huawei, and sits influencing all of Ericsson’s traditional local customers in Northern Europe. Vestberg should have made winning that account a priority.
The rise of SDN and of commoditized small cell base stations makes it tough to see any company coming back from this bad a performance and with a refreshed Nokia meeting it at every turn, all we can see are high R&D costs and lower revenues. A poor recipe for recovery, so any new CEO must really enjoy a challenge.