Placeholder CEO or master of detail? Börje Ekholm needs to show he's the right man to save Ericsson

Ericsson, Ekholm, Borje Ekholm

Any incoming Ericsson CEO would face a challenging task restoring the struggling vendor to health.

But is veteran Börje Ekholm the right person for the job?

Ekholm, who has served on the Sweden-based vendor’s board of directors since 2006, officially took charge last week.

At his inaugural press conference, Ekholm identified a return to profitability as one of his key goals.

His predecessor, Hans Vestberg, saw net income rise from SEK11.2 billion when he took over in 2010 to SEK13.7 billion in 2015.

But a disastrous start to 2016, including a profit warning, saw profits slump to SEK3.5 billion in the first nine months of the year, down from SEK 6.7 billion in the same period of 2015.

Vestberg’s tenure did see revenues rise from SEK 203.3 billion in 2010 to SEK 246.9 billion in 2015, but Ericsson’s share price dropped 8.6 percent.

The company’s problems are not just financial, however.

CCS Insight analyst Kester Mann says that the company is hampered by “strong pressure from Huawei, macroeconomic challenges in markets such as Brazil and a lack of consumer use-cases for 5G”.

IDC analyst John Delaney notes that Ericsson’s decision to offer mobile-only services has left it poorly positioned to deal with a move amongst telecoms operators towards fixed-mobile convergence.

It is clear Ekholm faces an uphill task.

According to Gartner Research Director Peter Liu, there are three major components to getting the company back on track.

As operators complete their 4G roll-outs, Ericsson will need to find the future areas for innovation such as cloud and the IoT and grow sales there.

It will also have to make use of partnerships with companies such as Cisco to supplement its intellectual property, Liu says.

Finally, the vendor needs to improve both strategy execution and efficiency.

Ericsson Chairman Leif Johansson thinks Ekholm has what it takes.

He says Ekholm has a “solid understanding of both the technology and business implications of the ongoing convergence of telecoms, IT and media” and “full understanding of the challenges and the opportunities Ericsson currently faces.”

He will “forcefully execute on strategic direction and plans”, according to the Chairman.

Analysts are divided, however.

Most agree that the main purpose of Ekholm’s appointment is to provide stability at a turbulent time, but they differ on whether this stability is a good or a bad thing.

To John Strand, CEO of Strand Consult, Ekholm was chosen as a “placeholder CEO”.

Fundamentally, Strand believes that some kind of merger with a competitor, perhaps Cisco, is what is needed to restore the company’s fortunes.

But he says that the majority of the board is resistant to such a move, one that would dilute their control of the company.

“All the qualified candidates have seen that the strategy that they would put in will not match the owners’ strategy,” Strand claims.

Ericsson’s largest shareholders are family-controlled investment house Investor AB and asset manager AB Industrivärden.

Both make a virtue of the fact they are long-term stewards of their investments.

But Bengt Nordstrom, CEO at Northstream Consulting, thinks that Ekholm could be “the right person at the right time.”

He believes that Ekholm is intelligent and analytical, somebody capable of “digging into the details.”

In contrast, Nordstrom says part of the problem of Vestberg’s tenure was over-optimism, and at times, naivety about where the industry was going.

Gartner’s Liu also takes a positive view, noting that Ekholm has successful investment experience and sensitivity to the market.

Like any CEO, Ekholm wilI live and die by the decisions he makes.

If he makes the right ones, there is some hope for the vendor, according to IDC’s Delaney.

“Ericsson’s portfolio and expertise position it well to serve telcos’ needs for more performance and capacity in their mobile data networks,” he says, arguing that data will be the most important growth market for telcos in the next few years.

He also highlights the potential of Ericsson’s TV business as telcos begin to behave more like media companies.

Ekholm’s first job will be to deliver what are expected to be a disappointing set of full-year financial results later this week.

While he has no control of the details therein, the new CEO has a testing 12 months ahead to prove he is no short-term fix and the 140-year old company has a future as a standalone business.

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