Profits collapse underlines Ericsson woes

A 44 PER CENT plunge in interim earnings reported yesterday by Ericsson, the Swedish telecoms equipment maker, has underscored both the urgency of the company's ongoing restructuring efforts and the rationale for the departure of Sven Christer-Nilsson as chief executive on 7 July.

Analysts are questioning whether the restructuring will relaunch Ericsson on a path towards rising market share, sales and earnings, or whether paring down the Swedish giant is but a prelude to a merger with Finnish rival Nokia.

Although Ericsson has labelled such suggestions as mere media speculation, it is a measure of the soul-searching going on in Stockholm in recent months that executives on the company's management have privately discussed just such an eventuality. As ever in Scandinavia, the future of Ericsson, like Volvo before its sale to Ford, will be determined by the multi-billionaire Wallenberg family dynasty, whose Investor holding company owns 22 per cent of Ericsson's voting rights. Indeed, Marcus Wallenberg, deputy chairman of Investor, holds the same position with Ericsson.

At the same time as Ericsson's first-half profits nearly halved to SEK4.26bn (pounds 318m), Nokia reported on Thursday a 59 per cent surge in pre-tax profits to 581m euros (pounds 383m). What's more, Ericsson was particularly hurt by a virtual drying up of margins on mobile handset sales, while Nokia's handset earnings doubled.

The challenges facing Ericsson are numerous - improve marketing to retail sales channels, develop network tools for the Internet, and shed more than 15,000 staff (out of 100,000) to boost profit margins. Nokia, in contrast, faces recruitment problems, despite adding 10,000 employees in the past year and taking its total employment base to 52,000.

Yesterday Lars Ramqvist, chairman and once again chief executive of Ericsson, was brutally frank about what lies ahead for the company. "Kurt [Hellstroem, president] and I need half a year to see that we can turn this around."

Unlike Nokia, which is tightly focused on handsets and the consumer market, Ericsson supplies handsets, traditional voice telecoms switching systems and mobile network infrastructure. Its weak suit is the booming market in Internet-related network equipment.

Analysts say Ericsson needs to follow other telecoms equipment manufacturers, such as Nortel, and align itself with an Internet networking company.