| Ericsson CFO resigns after warning |
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| Thursday, 25 October 2007 | |
Ericsson has replaced its Chief Financial Officer Karl-Henrik Sundström with immediate effect, days after poor Q3 results caused the firm's share price to collapse.
 Karl-Henrik Sundström In a statement, Ericsson (NASDAQ:ERIC, LSE:LME) said that Karl-Henrik Sundström, former Chief Financial Officer and Executive Vice President, "has decided to leave". On Thursday, Carl-Henric Svanberg, President and CEO of Ericsson, said that Sundström had stepped down after taking responsibility for the telecoms equipment maker's recent shock profit warning and subsequent stock market plunge. Ericsson, the world's largest manufacturer of mobile network equipment, said last week that results for the third quarter are expected to be below the company's own as well as current market expectations and primarily a result of an unexpected shift in the business mix. Ericsson saw its share price drop by 30 per cent after the announcement, the largest intraday fall in the company's history. An estimated £10 billion was wiped of the value of the company. Ericsson chairman Michael Treschow was quoted in Swedish newspaper Dagens Industri as saying that Svanberg "must sort out" the situation. Although he said major shareholders continued to have confidence in the company's future and in Svanberg as CEO, Treschow said that management needed to fix the situation and figure out how it could have happened. This week, Ericsson largely repeated the profit warning in the final figures, including a 36 per cent drop in both its operating income - from 8.8 billion Swedish crowns in 2006 to 5.6 billion ($865m) - during the third quarter of 2007. Final operating margins stood at 13 per cent, instead of a preliminary 12.9 per cent. Underestimated "The unexpected development in the quarter is mainly due to a shortfall in sales in mobile network upgrades and expansions which resulted in an unfavourable business mix that also negatively affected Group margins," said Svanberg. "All other businesses performed as expected. The effect of market dynamics is always a matter of judgment. This quarter we have underestimated the effects." Ericsson said that its networks business continues to develop most rapidly in regions where new network rollouts and break-in contracts are predominant. This is where competition is intense as it builds footprint for long-term profitable growth. "So far the margin pressures from these business activities have been offset by higher margin sales such as network expansions and upgrades. Such expansions and upgrades have a short sales cycle and builds during the quarter. This quarter, sales of these higher margin offerings did not materialise as much as in previous quarters. High margin software sales are also lower than normal," according to Ericsson's statement. The Professional Services segment continues to show strong growth and stable margins, Ericsson claimed. The firm said that the Multimedia segment is expected to also show a strong growth with operating income slightly above breakeven level, reflecting the continued investments in new business areas. Share price "In infrastructure, scale is critical for success. Our strategy to regain scale advantage through increased mobile systems market shares has been effective. The present market dynamics are however working to our disadvantage from a short-term financial perspective. Now that we have reestablished our scale advantage from the pre-industry consolidation we will shift our focus slightly and capitalise on our market share gains," Svanberg said. The firm said it regretted Sundström's decision to resign and praised his contribution to Ericsson's development. "With his experience Karl-Henrik Sundström has been a key contributor to Ericsson's industry leading position," said Svanberg. "Since Karl-Henrik Sundström took on the position as CFO, in the middle of the industry crisis, he has been instrumental in turning the company around and rebuilding it into the strongest in the industry." Hans Vestberg Hans Vestberg became Senior Vice President and General Manager of Ericsson's Business Unit Global Services on 1 January 2004 and Executive Vice President and General Manager as of February 2005. Between 2002 and 2003 he held the position of President of Ericsson Mexico. Between 2000 and 2002, Mr. Vestberg was CFO North America and controller for market area Americas. Between 1998 and 2000 he held the position of CFO of Ericsson Brazil. During Vestberg’s years with Ericsson he has held various positions in China, Sweden, Chile and Brazil. He joined Ericsson in 1991 within the Accounting area of Production. Vestberg graduated with a Bachelor of Business Administration degree from the University of Uppsala, Sweden, in 1991. Related links |
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