Ericsson CFO Steps Down on Earnings Tumble

Reuters and

Telecoms equipment group Ericsson said its chief financial officer stepped down on Thursday in the wake of last week's shock profit warning and share collapse.

Ericsson said Karl-Henrik Sundstrom decided to leave the group and it had replaced him with Hans Vestberg, head of the company's global services unit.

Ericsson Chief Executive Carl-Henric Svanberg told CNBC that Sundstorm was disappointed with the surprise profit warning.

"He came a couple of days ago and said it was time to do something else," Svanberg told "Power Lunch Europe."

"We can only regret that he's leaving, but accept it," Svanberg said.

Ericsson, the world's biggest maker of mobile networks equipment, dismayed investors last week with profits that fell short of its own expectations and the market's. Its shares were down 30 percent on the news at one point, the biggest intraday fall in its history.

Svanberg said the company was analyzing ways of better anticipating results to be able to prepare the market in the future.

Ericsson CEO on Earnings Decline
Ericsson CEO on Earnings Decline

He said July and August sales and bookings figures showed the company was ahead of the plan, then in September it had a shortfall which was not swiftly traced.

"Mid-September, we still only had July and August figures," Svanberg told "Power Lunch Europe."

"It's something for us to think about, if we can trace it better."

Outlook Unchanged

Ericsson's final third-quarter figures, released on Thursday, were broadly unchanged from preliminary numbers last week as the company confirmed operating income fell to 5.6 billion crowns ($865 million) from 8.8 billion a year earlier.

Ericsson shares were down 1.6 percent in afternoon trading.

The company repeated the reason for the poor results was lower sales of network upgrades coupled with a higher proportion of new network sales. Upgrades are more profitable, while new networks involve greater costs and hence are less lucrative.

The company said it still expected mid-single-digit growth for the GSM/WCDMA market in 2007, and its early expectation was that current market conditions would prevail in 2008.

The comments were broadly the same as issued last week.

"There's no fundamental change to the whole outlook," Svanberg told CNBC.

"I don't think we should dramatize the situation," he added, saying that operators had good, healthy financial positions and traffic increases were stable.

Confidence Hurt

But the market is also concerned that Ericsson had not prepared it better for the weak earnings.

"Confidence has been further hurt by the fact that Ericsson had no inkling that things had gone so badly wrong just two weeks before the end of the quarter," said Nomura Securities analyst Richard Windsor in a note to clients.

Svanberg said the third month of each quarter tends to make up the biggest share of business. Rather than each month accounting for a third, it was more like 25-25-50, he said. He said July and August were doing well, and as of mid-September the company was not aware of a looming shortfall.

"We also want to understand why September was lower. If that was just a temporary thing, or if that is hiding anything in particular. But with all that said, the general outlook for 2008 with those comments hasn't really changed," Svanberg said.

Svanberg paid tribute to Sundstrom for helping turn the company round when the telecoms equipment industry was in turmoil.

Ericsson Shares Slip on Profit Decline
Ericsson Shares Slip on Profit Decline

Windsor said the appointment of Vestberg was positive, not only because he had done a good job in the services area, but also for what it said about management.

"It shows a willingness to act quickly. We suspect that there are problems with the reporting lines which we hope Vestberg will rectify as quickly as possible," the analyst said.

Asked whether he felt he too should have stepped down to share responsibility, Svanberg told Reuters television: "That hasn't crossed my mind, and it's never been on the agenda."