When Börje Ekholm took charge of Ericsson in 2017, the Swedish maker of mobile network equipment was in a precarious position. Sales had plummeted by 15% in the previous year, and net profits had shrunk dramatically from 13.7 billion Swedish kronor (approximately $1.4 billion) in 2015 to just SEK1.9 billion ($190 million). His predecessor, Hans Vestberg, had expressed concerns about weak demand for mobile broadband just before his departure in July 2016. However, Ekholm's tenure has seen a remarkable turnaround for the company.
More than eight years later, Ericsson is now recognized as the technology leader in 5G outside of China. Its market share in North America has surged to between 50% and 70%, according to analyst Stefan Pongratz from Dell'Oro. The company has successfully outmaneuvered competitors and even dethroned Huawei in parts of Europe and the Asia-Pacific region, where Chinese vendors have been banned. Furthermore, Ericsson's gross margin, which had dipped to less than 30% under Vestberg, exceeded 44% last year.
Despite these successes, Ekholm's future as CEO appears uncertain. A recent report from EFN, a Swedish financial news outlet, indicated that his relationships with key Ericsson investors have deteriorated to a point where his job is at risk. While Ericsson declined to comment on the EFN report, dismissing it as "rumors and/or speculations," the concerns raised merit attention.
Investor and Industrivärden, Ericsson's two main owners, reportedly harbor significant dissatisfaction with Ekholm's management style and the company's recent performance. Notably, Jacob Wallenberg, chairman of Investor, and Fredrik Lundberg, his counterpart at Industrivärden, are among those expressing discontent.
The early years of Ekholm's leadership seemed promising compared to more recent developments. When he assumed the role, Ericsson's share price was languishing at SEK53.40, a steep decline from its peak of SEK750 in 2000. By April 2021, the share price had more than doubled to nearly SEK120. This resurgence was largely attributed to Ekholm's strategic decisions to divest non-core assets and invest heavily in 5G technology.
However, the acquisition of Vonage for $6.2 billion in November 2021 has been a significant misstep. Ekholm and his team have defended the purchase, claiming it would allow Ericsson and its telecommunications customers to generate new revenues from applications tailored for the 5G network. Yet, the company has since written down the value of Vonage by over $4 billion since completing the acquisition in July 2022, leading to a net loss of SEK25.7 billion ($2.6 billion) for 2023 and 2024 combined.
Vonage has only generated SEK31.2 billion ($3.2 billion) in sales for Ericsson over this period, accounting for about 6% of the company's total revenues. The arrangement has raised eyebrows among investors, particularly as Ericsson has now spun off part of Vonage into a joint venture called Aduna, intended to serve as a middleman for 5G network APIs.
In the wake of these challenges, Ericsson's share price has fluctuated significantly. After the Vonage deal closed, the share price fell from SEK75.74 to below SEK50 by October 2022. However, by mid-January 2025, it was trading above SEK95. The recent decline to SEK70.66 at the end of last week reflects ongoing concerns about the impact of new tariffs and other market dynamics.
Adding to the turmoil, US tariffs on certain Chinese imports have recently climbed to 145%. This has raised questions about the future profitability of the US market, which has become increasingly vital for Ericsson. In 2016, only a quarter of Ericsson's revenues came from US customers, but that share had surged to 40% by 2024, largely due to contracts with major carriers like AT&T.
As the company navigates these turbulent waters, Ekholm's comments about possibly relocating Ericsson's headquarters to the US have further alienated some investors. His contributions to Donald Trump's presidential inauguration, including a donation of SEK5.5 million ($560,000), have also drawn criticism. Furthermore, the withdrawal of references to diversity, equity, and inclusion in Ericsson's annual report has raised eyebrows, especially given the current political climate.
With the upcoming first-quarter earnings call scheduled for April 15, 2025, all eyes will be on Ericsson's management team to provide insights into current market conditions and clarify the speculation surrounding Ekholm's leadership. Investors are eager for answers about the company's future direction and how it plans to address the challenges it faces.
In the broader context of the telecommunications industry, Vodafone is also in the spotlight, facing antitrust charges in Germany for allegedly sabotaging the 5G rollout of rival 1&1. The German competition authority, Bundeskartellamt, has indicated that Vodafone and its subsidiary, Vantage Towers, may have engaged in anti-competitive behavior by failing to provide agreed-upon mobile sites to 1&1, which has hindered its ability to compete.
In another development, the tech sector received a temporary reprieve from new tariffs on smartphones, laptops, and semiconductors, but uncertainty looms over the duration of these exemptions. President Trump has warned of future tariffs and investigations into the semiconductor industry, further complicating the landscape for technology companies.
As the telecommunications sector grapples with these challenges, the quantum technology community celebrates World Quantum Day, highlighting the potential of quantum-safe networking. The UK government has announced a £121 million investment to fund research and development in this area, signaling a commitment to securing the nation's leadership in quantum technologies.
In conclusion, as Ericsson faces scrutiny from investors and the market, its ability to navigate these challenges will determine its future. With significant shifts in the telecommunications landscape and evolving market dynamics, the company's next steps will be crucial in shaping its trajectory.
