Ericsson in the New Millennium

Ericsson in the New Millennium
Case Code: BSTR128
Case Length: 13 Pages
Period: 1990 - 2004
Pub Date: 2004
Teaching Note: Available
Price: Rs.400
Organization: Ericsson
Industry: Telecom
Countries: Global
Themes: -
Ericsson in the New Millennium
Abstract Case Intro 1 Case Intro 2 Excerpts

Excerpts

1990s: Beaten by the Competition

Ericsson was highly successful in the early 1990s - the boom time for the telecom industry. But towards the end of the 1990s, the telecom market in the developed countries started stagnating. At this point, the telecom industry shifted its focus from the developed markets to the developing markets of Asia and Eastern Europe - both of which offered a great opportunity.

Consumers in these emerging telecom markets also took easily to the mobile revolution. Ericsson took immense pride in providing advanced telecom technology and making technologically sound handsets. The company invested huge amounts annually on its research and development projects, and its handsets were very popular with mobile phone users during the early days of mobile telephony. But what Ericsson failed to see was the shift in consumer tastes. The purchasing decisions of consumers in developing countries were influenced by a different set of factors compared to the factors that influenced the purchasing decisions of consumers in developed countries. Ericsson's handsets were technologically advanced but overpriced for customers in developing countries...

Slow to Change

In the late 1990s, Ericsson appeared to be definitely in trouble. But, many analysts believed that it could have coped with the slowdown in the economy in general and in the telecom sector in particular, had its management acted decisively. Initially the company had a problem with the sales of its handset business - and it should have realized at a very early stage that mobile phones were no longer considered an engineering feat but were simply consumer products, and so they should be made and marketed accordingly. Ericsson had excellent products in its range; Ericsson's R380 mobile phone had won a trade show prize in March 1999. But the problem was that Ericsson was too slow in capitalizing on the opportunities that presented themselves. The R380 handset, a promising product was not commercially introduced in the market until a year later, and by then better alternatives were already available to consumers...

The Early 2000s: Restructuring

The Asian financial crisis had a negative effect on companies worldwide. It had paralyzed economies around the world and growth in the telecom sector too slowed down. Sales in the US were especially hard-hit. The US had been one of Ericsson's strong markets. With falling sales in the US market and failure to compete in the Asian markets, Ericsson was in a lot of trouble. In a statement released in 2001, the company said, "The current economic slowdown, in particular in the US, has increased the uncertainty about the growth rate in the entire information technology sector." In the Asian markets, Ericsson was also facing tough competition from many Asian companies, such as Samsung and LG, that had entered the mobile handset business in a big way, and were in a race to provide them at the lowest prices. Between 1999 and 2000, many European telecom operators interested in expansion had taken enormous loans running into billions to buy licenses and acquire other telecom companies...

Turnaround

By the end of year 2003, Ericsson had finally managed a turnaround in its fortunes. In the first quarter of 2004, Ericsson earned a profit of $390 million (Refer to Exhibit III for Ericsson's performance since 2000). Exactly a year earlier, for the same period the company had incurred losses to the tune of $566.9 million. This was therefore, an outstanding performance from a company that had been struggling miserably for the last two years. In the first quarter of 2004, Ericsson experienced 9% growth in sales to a level of $3.7 billion, and a major share of this growth was in markets in Mexico, China and Brazil. The major contributor to Ericsson's growth was Ericsson's mobile systems, which contributed $2.77 billion in sales. Services from Ericsson contributed $540 million, while equipment for wireless systems contributed $118 million and other operations of Ericsson provided $316 million. But the real sign of recovery for Ericsson was that by the end of 2003, the company was operating on gross margins of 41.6 %...

Exhibits

Exhibit I: Ericsson's Products and Services
Exhibit II: US Wireless Infrasructure Key Suppliers
Exhibit III: Ericsson's Performance in Early 2000s

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