Tech

Leila Abboud is a Bloomberg Gadfly columnist covering technology. She previously worked for Reuters and the Wall Street Journal.

Ericsson AB's biggest shareholder -- the Wallenberg-backed Investor AB -- has parachuted in a loyal lieutenant as CEO of the crisis-hit telecom equipment maker. Why do anything so vulgar as bring in fresh blood?

Shareholders can only hope that Borje Ekholm will prove himself a turnaround artist, who at least enjoys a clear mandate from the board to do whatever it takes to fix Ericsson. We don't know yet what ideas he has beyond the needed cost cuts already underway. Shares in Ericsson rose 3 percent on Tuesday out of relief as much as anything else. He'll take over in January.

A bit about the man. He was CEO of Investor between 2005 and 2015. That means he's close to Sweden's powerful Wallenberg family. Investor has backed Ericsson since 1950 and controls 21.4 percent of its voting rights and two board seats. It has to share power at Ericsson with rival investment fund Industrivarden, which holds 20 percent of the voting rights and one board seat.

Ekholm has been on Ericsson's board for 10 years. That means he helped ratify the flawed strategy of the previous boss. Along with the rest of the board, he dawdled even as it became clear it wasn't working. I've argued before that the patient capitalism exemplified by Ericsson's old-world shareholders is part of the problem for a company at the front line of high-tech change. Ekholm just continues that.

Regardless of who the board picked, there's no easy way to fix Ericsson. Its troubles go deeper than an industry-wide slowdown, brought about by telecom operators slowing spending now 4G networks are largely built. It hasn't cut a bloated cost base fast enough and has botched efforts to build fixed-network products, while shunning acquisitions that could plug the hole.

Waiting Game
Ericsson has industry-leading market share in mobile equipment. But global operators are spending less since many 4G networks have been completed.
Source: IHS
NB -- 2016 to 2020 are estimates

If Ekholm can halt the erosion of Ericsson's gross margin, it would be a start. There shouldn't be any taboos about shutting down or selling weak product lines, including its unloved fixed and Internet Protocol products. Ericsson must also prove that a partnership signed with Cisco Systems Inc a year ago, to cross-sell and jointly develop fixed network and internet gear, delivers more sales and profit.

Margin Mess
Ericsson's gross margins have been dragged lower this year as cost controls fail, and product mix becomes less favorable. Nokia's have been affected by its takeover of Alcatel-Lucent.
Source: Bloomberg

Probably most important, Ericsson needs to hold tight to its leadership in mobile network gear, especially as the industry works to develop 5G technology. Hiring such a classic insider might help end the disarray at the company, a state of affairs that's ruthlessly exploited by Nokia and China's Huawei. But the shift to 5G needs vision too, and there are still serious doubts about whether the Wallenbergs and their man are the right people for that.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Leila Abboud in Paris at labboud@bloomberg.net

To contact the editor responsible for this story:
James Boxell at jboxell@bloomberg.net