Ericsson Ousts CEO After Another Disappointing Quarter

A week after the company announces further sales declines and more cost-cutting measures, Hans Vestberg resigns following more than six years as CEO.

Tech business

Ericsson fired CEO Hans Vestberg after the latest quarterly financial numbers showed the Swedish telecommunications equipment provider was continuing to struggle in a rapidly changing market that includes rising competitors such as Huawei Technologies and Nokia.

The ousting of Vestberg July 25 came a week after Ericsson announced that revenue in the second quarter fell another 11 percent over the same period in 2015, and that gross margins and operating margins also took a hit. Company officials at the time said they were initiating another round of cost-cutting measures in hopes of doubling savings in its operations by 2017. Those measures include cutting jobs and reducing investments in R&D and other areas.

Jan Frykhammar, the company's executive vice president and CFO, will be the interim CEO until a successor to Vestberg is found. Vestberg was a 28-year veteran of Ericsson, including serving as CEO for more than six years.

In a statement, board Chairman Leif Johansson said that Vestberg had done well navigating Ericsson through a period of change at both the company and within the industry, but that "in the current environment and as the company accelerates its strategy execution, the board of directors has decided that the time is right for a new leader to drive the next phase in Ericsson's development."

In an interview with the Wall Street Journal, Johansson said the board had been considering a change in the CEO position for a while, with board members finally making a decision July 24.

Ericsson's struggles come at a time when telco spending on 3G and 4G equipment is starting to slow. At the same time, Huawei and Nokia have become tougher competitors. Officials with China-based Huawei are making a significant push into the European market, selling equipment at lower prices. In addition, Nokia is more competitive after closing its $16.6 billion acquisition of Alcatel-Lucent earlier this year.

Ericsson has countered by partnering with Cisco Systems to expand its capabilities in both the United States and other regions. The alliance was announced last year, with officials from both companies saying it will help them address such emerging markets as the Internet of things (IoT), software-defined networking (SDN) and network-functions virtualization (NFV) and compete with the likes of Huawei and Nokia.

In February, Ericsson and Cisco expanded the partnership to include working with Intel in developing what they said will be the industry's first 5G router. 5G networks are expected to deliver as much as 100 times the speed of current 4G networks and more easily handle the proliferation in the number of connected devices—expected by Cisco and others to hit more than 50 billion by 2020—and the rising presence of video on mobile networks.

According to Ericsson officials, the company and Cisco have engaged in more than 200 joint customer visits since the partnership was first announced, and that more than 30 deals have closed. The companies hope to reach $1 billion in sales through the alliance in 2018.

The company also is hoping the cost-cutting and restructuring efforts also will help improve the financial numbers. Ericsson—which has more than 116,000 workers—already has laid off about 8,000 employees, and more will come following the company's latest disappointing financial quarter and the expectation of a third consecutive year of declining revenues.

In addition, Ericsson in recent months has been the object of investigations into business practices in such countries as the United States and Greece.