June 25 (Bloomberg) -- Ericsson AB, the world’s largest maker of wireless networks, promoted Chief Financial Officer Hans Vestberg to replace Chief Executive Officer Carl-Henric Svanberg, who is leaving to become chairman of BP Plc.

Vestberg, who joined Ericsson straight out of business school in 1991 and has worked for its units from China to Mexico, will take over on Jan. 1, the Stockholm-based company said. The 44-year-old was being groomed to become CEO, said Pierre Ferragu, a London-based analyst with Sanford Bernstein.

“Hans Vestberg is a very bright manager who was identified as a possible chief executive as early as 10 years ago,” said Ferragu, who has an “outperform” rating on Ericsson.

Vestberg takes the helm at a time when Ericsson’s telecommunications customers have reined in spending on new networks amid the global economic slump. The industry’s sales slide is forcing equipment providers to boost services and software offerings to retain business.

Ericsson shares fell 0.9 percent to 76 kronor at 1:25 p.m. in Stockholm, giving the company a market value of 246.6 billion kronor ($31.1 billion). Before today, the stock rose 30 percent this year, beating the four-member Bloomberg Europe Telecommunications Equipment Index’s 6.3 percent gain.

“Vestberg’s challenges are the same as Carl-Henric’s: to enhance the company’s position in mobile broadband, expand managed services, evolve Ericsson into a major player in multimedia applications, and, not least, to revive the profitability of its handset-related entities,” said Per Lindberg, a London-based analyst at MF Global Securities Ltd.

Cost-Cutting Plans

Ericsson has “a belief that organic growth is best” and it hasn’t bid on any assets from bankrupt Nortel Networks Corp., Vestberg said in an interview with Bloomberg Television. He reiterated Svanberg’s statements that the company would support the Sony Ericsson handset venture with more capital if needed.

He has no plans to deepen cost cuts begun this year that are designed to save 10 billion kronor annually from the second half of 2010, he said. “Right now the program we announced at the beginning of the year is the program we’re executing,” he said in the interview.

“This move of Vestberg replacing Svanberg has been already rumored quite a bit so it’s not a huge surprise,” said Ferragu. “I’m personally a bit disappointed because I think Svanberg has done a fantastic job since 2003.”

Svanberg’s Record

Svanberg, 57, is credited with bringing the company back from the brink of bankruptcy. He helped Ericsson recover from three years of losses when he arrived at the company in April 2003 from lock maker Assa Abloy AB.

His reputation was tarnished when in October 2007 he told investors that third-quarter profit and sales would miss estimates, just one month after telling analysts that demand was “strong.” That triggered a 24 percent share drop. In November 2007, he cut the sales target again.

“Svanberg created a lot of bad-will with the investing community when he came out with the surprise profit warning,” Ferragu said.

Vestberg, who was then head of global services, was named chief financial officer nine days after the October 2007 announcement that pulled down the stock.

In the first quarter this year, Ericsson’s profit fell 35 percent on costs of job cuts. The company is eliminating 5,000 jobs this year at a cost of 6 billion kronor to 7 billion kronor as it anticipates spending cuts by telecommunications companies.

Svanberg said in March that Ericsson was winning sales as competitors including Nortel and Motorola Inc. struggled to adapt to the slowing global economy.

‘On Track’

The cost-reduction plan is “on track”, Vestberg said today in an interview after a press conference in Stockholm. He said the company is looking for a new CFO and the business climate has improved slightly. He declined to call a bottom to the market in his Bloomberg Television interview, saying the situation is too variable from country to country.

Ericsson is working with Intel Corp. on chip modules for netbooks as it seeks to promote mobile Internet use that will require upgrading networks for higher-bandwidth traffic. The company is also developing mobile video-conferencing software and other value-added services for its operators.

“Hans Vestberg will lead Ericsson in a phase where the transformation of telecom operators’ networks and implementation of Internet-based services are crucial,” Ericsson Chairman Michael Treschow said in an e-mailed statement.

Industry Consolidation

The telecommunications equipment sector is consolidating. Competitor Nokia Siemens Networks announced June 20 that it bought assets from bankrupt Nortel to gain traction in the North American market. Both companies are competing with Huawei Technologies Co., ZTE Corp. and Alcatel-Lucent SA for billions of dollars in expansion contracts in China and India.

Vestberg has wide international experience, having held various positions for Ericsson in China, Sweden, Chile and Brazil since 1991. He was the head of Ericsson Mexico in 2002 and 2003, and CFO North America and controller for the Americas from 2000 to 2002.

The executive was born in Hudiksvall, Sweden, and has a degree in business administration from the University of Uppsala, Sweden. He is also a member of the board of the Swedish handball association.

To contact the reporter on this story: Diana ben-Aaron in Helsinki at dbenaaron1@bloomberg.net

Last Updated: June 25, 2009 07:29 EDT