Ericsson Names Vestberg as Chief Financial Officer

Ericsson Names Vestberg as Chief Financial Officer

Ericsson AB, the world's largest maker of wireless networks, named Hans Vestberg chief financial officer to replace Karl-Henrik Sundstroem, nine days after saying profit and sales trailed its forecasts.

Vestberg, head of the global services unit, will take the position immediately, Ericsson said in a statement. Stockholm- based Ericsson said today net income fell 36 percent to 3.97 billion kronor ($619 million), the lowest in 3 1/2 years.

Ericsson shares tumbled 24 percent on Oct. 16 after Chief Executive Officer Carl-Henric Svanberg said earnings were hurt by lower demand for network upgrades in North America and Europe, and fourth-quarter revenue may decline. Svanberg had told investors last month that industry growth was ``strong.''

``This clearly illustrates the shortcomings in the internal reporting,'' said Thomas Langer, an analyst at WestLB in Dusseldorf, who has a ``hold'' rating on Ericsson shares. ``The management's swift reaction will work as a healthy shock to the organization. People will now realize that there were real internal problems.''

Ericsson shares fell as much as 0.48 krona, or 2.5 percent, to 18.68 kronor and traded at 18.90 kronor as of 3:27 p.m. in Stockholm.

``It will take some quarters of solid performance to get investors back and to improve the sentiment of the stock,'' said Jacob Pedersen, an analyst at Aabenraa, Denmark-based Sydbank who gives the shares a ``neutral'' recommendation.

Sundstroem's Departure

Svanberg said at the company's press conference today that Sundstroem had approached him asking to step down. ``He was disappointed with the third quarter. We can only regret that he steps down.'' Vestberg ``was a very natural choice,'' Svanberg said in an interview.

Vestberg, who will remain as head of the global services unit a replacement is found, has held various positions at Ericsson in China, Sweden, Chile and Brazil since 1991. He was the head of Ericsson Mexico between 2002 and 2003, and CFO North America and controller for the Americas from 2000 to 2002.

The executive was born in Hudiksvall, Sweden, in 1965 and is married with two children. Vestberg 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.

`Investor Credibility'

``We believe he is a suitable appointment with investor credibility,'' Kulbinder Garcha, an analyst at Credit Suisse in London, wrote in a note to investors. ``A new CFO, improving provisions disclosure, a less aggressive market share strategy as well as a commitment to improving forecasting trends are without doubt positives on a long-time view.''

Ericsson didn't get expected orders to upgrade AT&T Inc.'s wireless network in the U.S., Svanberg said last week.

``It will increase, but not this year,'' he said today about the U.S. order intake.

The company has won contracts for new networks in China and India that carry lower profit margins than upgrading existing networks in Europe and North America.

``So far we haven't lost any market share in China,'' Svanberg told analysts and investors on a conference call today.

Ericsson's announcement last week wiped out $14 billion of market value in one day, costing it the title of Sweden's largest publicly traded company, as clothing retailer Hennes & Mauritz AB overtook the network maker in terms of market value for the first time since July 2003. The slide in Ericsson's stock was the biggest in at least 17 years and it fell back to a level last seen in April 2005.

`Humble, Concerned and Disappointed.'

On the day, Svanberg said he was ``humble, concerned and disappointed.'' Today he said the first quarter next year could be the low-point in the current cycle of fewer orders to upgrade and expand networks.

The announcement followed a lowered sales forecast from Alcatel-Lucent SA, the biggest maker of telecommunications equipment. Alcatel-Lucent last month cut its 2007 sales estimate on fewer-than-anticipated orders in North America. Siemens AG has also said it's not satisfied with the performance of a telecommunications-equipment venture with Nokia Oyj.

``We will do more analysis of our business so that we better understand the dynamics,'' Svanberg said today. He declined to give more details.

Ericsson said sales gained 6 percent to 43.5 billion kronor in the third quarter. Analysts had predicted sales of 45.3 billion kronor, the average of 22 estimates before last week's announcement. Earnings per share fell to 0.25 krona from 0.39 krona a year earlier.

Cost Reductions

Svanberg became CEO in April 2003 and stepped up the pace of cost reductions, pulling the company back from near bankruptcy. Ericsson, founded in 1876 when Lars Magnus Ericsson opened a repair shop for telegraph equipment, slashed more than half its workforce between the end of 2000 and mid-2004 as customers reined in spending.

Under Svanberg, Ericsson has reorganized into three business divisions that sell fixed networks, wireless networks and multimedia applications such as Web-based television broadcasting.