Lars Ramqvist learned the valuable lesson from his father, a mining foreman, that hard work pays off. Now, he's enjoying some of the rewards. Last summer, after three grueling years as president of L.M. Ericsson, the Swedish telecommunications equipment maker, Ramqvist cashed in about $2 million in company stock to buy a private hunting reserve near the Baltic Sea. From his new digs in a 16th century chateau, he can roam the 1,500 acres south of Stockholm stalking wild boar, moose, and other game.
The estate is a reward for taking the heat of the past few years. After watching profits nose-dive since 1990, Ramqvist turned Ericsson around this year and made it one of the hottest players in the sizzling telecommunications game. Its star performer: cellular mobile-phone networks. Ericsson has long controlled a leading 40% of the world market for traditional analog cellular transmission equipment, ahead of Motorola Inc. and American Telephone & Telegraph Co. Now, it has taken an even stronger lead--as much as 60%--in the surging market for digital cellular gear. Led by a 75% spurt in cellular sales in the year's first half, Ericsson's profits will more than double this year, to $228 million, on a 28% jump in sales, to $7.5 billion, predicts Merrill Lynch & Co. analyst Neil Barton. And its stock price has more than doubled since January, to a record high of 51.
"SALAD DAYS." Ramqvist is banking on an increasingly mobile future. This year, for the first time, cellular will account for more of the company's sales than wire-based public phone network equipment--Ericsson's core since its founding in 1876. Now, Ramqvist hopes to parlay that mobile strength into every flavor of emerging wireless communications, from cordless office phones to the new "personal communications systems." He's also positioning Ericsson to be in the middle of plans by phone-network operators over the coming years to combine mobile and fixed systems so callers can dial and be reached anywhere using a single personal phone number. Cellular alone "is not the end of the strategy," Ramqvist says. "It's now, during the salad days, that we must start to work."
In fact, Ericsson faces a bundle of challenges. The new digital mobile market has attracted twice as many big suppliers as the half-dozen hawking analog systems. Ericsson is also likely to lose its largest mobile customer, McCaw Cellular Communications Inc., to AT&T, which has agreed to buy McCaw.
At the same time, price wars are slashing profit margins in Ericsson's public-network phone-switch business--still the company's cash cow. That's especially painful in the savage U.S. market, where analysts estimate it lost $50 million last year on traditional phone switches, though it made a profit overall. Ericsson has also lost share recently in countries such as Mexico and Spain. As a result, profits, though rebounding, may not surpass the 1990 pre-tax peak of $437 million before 1995, predicts James Capel & Co. analyst Bill Coleman.
Still, the focus on fast-growing mobile looks smart in light of intense competition in the traditional wired-phone- switch market. The cellular comeback has even put to rest years of speculation that Ericsson would be forced to sell out because it couldn't compete with well-heeled rivals that are more than twice its size. "Ericsson has taught everyone a lesson about staying responsive in a liberalizing market," Coleman says. Its nimbleness, he adds, could prove more critical than deep pockets as privatization and deregulation around the world put phone-system customers up for grabs.
Ramqvist's agility was put to the test soon after he took the helm in 1990. Strong growth of both public network switches and analog cellular systems began to peter out--just after he had persuaded directors to swallow a massive 50% budget hike for research and development over two years, to $1 billion annually. Ramqvist, 54, still shudders when he recalls an investors' meeting in November, 1991, only a week after his biggest customer, Telef nica de Espa a, unexpectedly slashed its orders by 80%. "It was the darkest moment of my career," he says. Along with crashing profits, Ericsson's stock price collapsed 70%, to 11--barely more than it was spending per share on R&D.
THE EASY PART. But Ramqvist ignored advice--some from his own staff--to cut R&D to bolster profits. Had he taken that way out, says Chief Financial Officer Carl Wilhelm Ros, "we'd be out of business by the mid-Nineties." Instead, Ramqvist decided to slash the number of factories by half, to 30, by 1995. He also intensified cost-sharing ventures with such partners as Texas Instruments for chips, Hewlett-Packard for network software, and General Electric for marketing mobile gear in the U.S. So far, Ericsson has cut overhead by $300 million and jobs by 11%, to 64,000.
That was the easy part. To keep Ericsson's global lead in mobile communications, researchers had to develop new digital systems to three different standards--for Europe, the U.S., and Japan--at once. Any one was an order of magnitude more complex than an analog system. But the European standard, called Groupe Speciale Mobile (GSM), was a developer's nightmare, as technical specifications changed right up to the July, 1991, startup deadline agreed to by European network operators. To meet the crunch, Ericsson ran research, manufacturing, and service operations in parallel for the first time. Researchers fed test results 24 hours a day over six months to a lab dubbed the War Room, near Stockholm. In turn, it routed design changes to production and installation sites around Europe.
On the ground in Germany, frenzied technicians installed hundreds of prototype radio base-stations and switches to meet the deadline for Mannesmann Mobilfunk, Ericsson's most important GSM customer. They had to be replaced a year later with commercial versions--at a cost of millions to Ericsson. "Ramqvist took a beating, but it paid off handsomely," says Mobilfunk board member George Schmitt. While Alcatel Alsthom, Philips Electronics, and others ran into GSM delays, Ericsson's Mobilfunk victory has helped it win orders for 21 of 38 GSM networks ordered so far.
New mobile operators such as Mobilfunk have been Ericsson's ticket into new markets from Canada to Taiwan. Most important, a $400 million order from upstart Japan Telecom broke the lock on Japan's analog market shared by NEC, Fujitsu, and Motorola. As a result, Ericsson is the only supplier shipping complete digital systems to the world's top three markets.
Ericsson has proved a wily competitor in mobile-phone handsets, too. Last year, it stunned Motorola and Finland's Nokia by introducing a 12-ounce GSM pocket model--a third lighter than the best from either of those market leaders. Then, this summer, it slashed prices by 25%. Ramqvist says mobile-phone sales will double this year, to $650 million. Dataquest Inc. analyst Dean Eyers expects Ericsson to move up three notches this year, to third place in global market share for cellular phones.
For an encore, Ramqvist is counting on taking the lead in the emerging market for personal communication sys- tems. PCS, using low-power transmitters and cheap pocket phones, promises to bring wireless calling to the masses--and quintuple the world's current 22 million mobile subscribers by the turn of the century, Ericsson believes. It took an early lead by snaring the contract for the world's first PCS network, a London system launched this summer. But Nokia is close on its tail, with two PCS wins in Germany and Britain.
More than a sequel to cellular, however, PCS is critical to Ericsson's strategy in public networks. As fixed-network operators such as the U.S. Baby Bells expand their wireless presence through PCS, Ericsson aims to gain an edge by integrating fixed and mobile features on the same switch at lower cost. It's no surprise that the first combo products will roll out next year in the U.S., where fourth-ranked Ericsson has been bloodied in price wars over standard switches with AT&T, Northern Telecom, and Siemens.
That won't be Ericsson's only fight in the U.S. As mobile operators go digital, it so far has snapped up 10 adopters--including McCaw franchises in New York and Dallas--of an early digital standard called TDMA, for time-division multiple access. But many other cellular operators are holding out until 1995 for a rival digital standard backed by Motorola. If the Motorola camp prevails, Ericsson could lose its grip on its 30% U.S. mobile market share. It would likely switch to the new standard, called code division multiple access, or CDMA, if pushed. The problem then, warns Craig Farrill, technology vice-president at PacTel Corp., is that "they're not going to be a leader."
MIX MASTERS? For now, booming sales in such markets as Japan and China allay potential worries in the U.S. "Ericsson is on a roll because mobile is on a roll," says Jozef Cornu, executive vice-president of Alcatel. "But how long can that last?" Indeed, market researchers at Northern Business Information predict digital cellular growth will plateau by 1996.
But Ramqvist has a plan. By then, he expects feisty Ericsson to move into high gear on new multimedia switches, which can handle a mixture of voice, video, and data, and high-speed transmission systems, where it has lagged behind in the past. If Ericsson proves as agile there as in mobile, Ramqvist may think one day about adding a wing onto that Baltic retreat.