Ericsson picks board veteran Ekholm to engineer turnaround

October 26, 2016 2:50 AM EDT

Flags with Ericsson logo are pictured outside company's head office in Stockholm, Sweden, October 4 , 2016. TT NEWS AGENCY/Maja Suslin via REUTERS


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By Olof Swahnberg and Helena Soderpalm

STOCKHOLM (Reuters) - Ericsson picked Borje Ekholm, a Swedish business insider and veteran board member, to steer the telecoms gear maker through its worst crisis in a decade.

Ekholm's surprise appointment as CEO on Wednesday ends months of speculation over who Ericsson would select in its global search for the right leader to tackle an industry downturn and fierce competition from Nokia and Huawei [HWT.UL].

But it immediately raised questions over Ericsson's future and whether Ekholm, who sat on the Stockholm-based firm's board for a decade, is the right person to guide it into software and services as it waits for 5G network demand to kick in.

For some, Ekholm, who Chairman of the Board Leif Johansson said was the top choice, represents the old Ericsson which failed to respond fast enough to worsening market conditions.

"What speaks against him is that he has been on the board for 10 years," Daniel Djurberg, analyst at Handelsbanken, said.

"On the positive side, there is a new CEO who can drive some kind of strategy. But how new and fresh that new strategy is going to be remains to be seen."

Ekholm's appointment initially breathed some life into Ericsson's battered shares which later traded down 1.1 percent at 1136 GMT and remain down 46 percent year to date.

Others said Ekholm was right for the job, with the crisis at Ericsson deepening in recent weeks with thousands of job cuts and following a dramatic profit warning that led analysts to slash their forecasts.

"Ekholm is ... a fixer who does what is needed," said a fund manager who owns Ericsson shares and declined to be named. "It is now about stopping the bleeding and making it a healthy company, and from that perspective Ekholm is a good choice."

Ekholm served for a decade as CEO of the Wallenberg family-backed investment firm Investor AB, whose shares tripled during his tenure, and is CEO of Investor AB subsidiary Patricia Industries.

Still, leading a global firm of over 113,000 employees will be far different from being the head of a Swedish investment firm with a staff of about 100.

"We think he has enough telecoms experience for it to be a big plus compared to a completely external CEO recruit," Johansson told Reuters. "He has been very involved in the technical and strategic discussions."

CRITIC PLACATED

Ekholm's appointment comes three months after Hans Vestberg was ousted as CEO following months of criticism over his leadership, pay and the company's poor performance.

The 53-year-old who has both Swedish and U.S. citizenship, will take over at Ericsson on Jan. 16 and will be based in the United States where he currently lives.

Ericsson's second-biggest investor, Industrivarden, which has been vocal in its criticism this year, said it was pleased to have a new CEO with an "extensive and long experience of technology companies in a global arena".

Ekholm, who holds engineering and business degrees, said he was excited about the opportunity and was confident that Ericsson would survive as an independent company.

"We have a strong competitive position, a strong market position and good technology," Ekholm told Reuters.

"I am convinced that as we move more towards cloud services there is going to be a greater need for connectivity... and this is where we are going to play a huge role in the future."

Some said it looked like Ekholm was being brought in to clean up and prepare for strategic deals such as asset sales.

"This feels like an interim solution," said fund manager Inge Heydorn at Sentat Asset Management who invests in the telecoms sector but owns no Ericsson shares. "Are they going to split the company, or prepare it for sale?"

Ekholm is known for his sense of humor and in the 2008 year-end report for Investor, at the height of the financial crisis, highlighted the need to take risk by quoting Canadian ice hockey legend Wayne Gretzky: "You miss 100 percent of the shots you don't take."

(Additional reporting by Johan Sennero and Johannes Hellstrom, Eric Auchard in London; writing by Mia Shanley; editing by Jason Neely and Alexander Smith)



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