Ericsson begins restructuring

The Swedish telecommunications giant announces a comprehensive restructuring plan, hoping to spur lagging sales and get its stock out of the basement.

2 min read
Ericsson has announced a comprehensive corporate restructuring plan, but the changes are unlikely to spur lagging sales or get the company's stock out of the basement.

The Swedish telecommunications giant, known primarily for its wireless services in the United States, announced today that it has created three new divisions in hopes of increasing focus on specific markets and becoming more responsive to market changes and demands.

The company said the restructuring will not involve layoffs.

"Because we are trying to generate closer contacts with customers in the markets, there may be changes that people may be moved out of certain areas and into regional headquarters," said Ericsson spokesman Per Bengtsson.

Ericsson has seen its stock tumble in recent months and today is trading near its 52-week low at 17.88. The stock has traded as high as 34 and as low as 16.94 during the past 52 weeks.

In early September, Ericsson moved to buy Advanced Computer Communications, a maker of internetworking products, for about $285 million in cash. The acquisition marked yet another sign of the convergence of telephone and networking companies. In Ericsson's case, however, the purchase was made to keep up with its competitors rather than to take a lead. It came only after Northern Telecom's purchase of networking giant Bay Networks.

Lucent Technologies also is likely to be a strong competitor for Ericsson going forward, as the telco equipment maker is poised to gobble up a large networking company in hopes of capitalizing on convergence opportunities.

Most telcos have downplayed the importance of the Internet and data networking of late to retrain their focus on the wireless sector. Cellular phone giant Nokia of Finland has seen strong growth by concentrating mainly on its wireless business--unlike its rival Ericsson. In fact, Nokia recently raised its forecast for the number of its mobile phone subscribers globally, to one billion users by 2005.

Ericsson's overhaul was initiated by the company's new president and CEO, Sven-Christer Nilsson, who took the reins this spring. The restructuring will be fully implemented as of January 1, 1999.

Under the company's previous structure, each of the three new divisions will focus on a different business segment, profit responsibility will be decentralized to smaller units, and decisions in certain strategic areas will be made by a corporate executive team.

The network operators' segment will include operations for both wireless and fixed solutions for data and telecommunications. The consumer products division will work on mobile phone operations, the segment's core. The enterprise solutions segment will focus on comprehensive solutions for business communication requirements and will take over operations for what had been the Infocom Systems and Mobile Systems Business Areas divisions.