Record profits

In the third quarter of 2003, Ericsson returned to profit, as we have seen, after ten loss-making quarters in a row. And soon the company attained margins of a hitherto unprecedented level:

Year  Turnover
SEK millions
Net profit
SEK millions
Operating margin
Percent
Number of
employees
R&D
%
2004 131,972 17,836 20.2 50,534 17.7
2005 151,821 24,460 21.8 56,055 16.1
2006 177,783 26,436 20.2 63,781 15.7


The figures are from Ericsson’s annual reports.

On the stock exchange, share prices rose only moderately. They went up until February 2004 and then hovered at the same level (about SEK 21) until April 2005, when they began to rise again, only to stagnate a few months later (at the SEK 27 level).

At Ericsson, the mood was calm and optimistic, but this cannot be said about the sector as a whole. Among the competitors, Motorola made a good recovery: a graph of the company’s earnings resembles Ericsson’s until 2006. Nokia’s mobile phone division also continued to do well, while on its systems side, earnings continued to shift between plus and minus.

Other competitors faced greater difficulties. On the whole, business in the sector was changing radically. Mobile telephony continued to gain large numbers of subscribers each month all over the world; new operators emerged and bought each other up; 3G networks were expanding. But how were the participants to make any money?

In March 2006, France’s Alcatel and America’s Lucent announced they were to merge; in June Nokia’s and Siemens’ network divisions also announced a merger. The new companies, Alcatel-Lucent and Nokia Siemens Networks, were more or less the same size as Ericsson. A new emerging competitor could be discerned in the Chinese company Huawei.

In Silicon Valley, a new company called Google, founded in 1998 by two students at Stanford University, Larry Page and Sergei Brin, was the talk of the town and also turned out to be able to make money. And it was obvious that neither Microsoft nor its constant rival Apple could ever be discounted.

In April 2004, Ericsson formed an alliance with Cisco in two defined areas, public fiber broadband networks (Ethernet access) and company exchanges (softswitching). As so often before in Ericsson collaborations with large American companies, it turned out to be difficult to establish a solid interface between the cultures.

What would be the next big thing for Ericsson?
Jan Uddenfeldt says: “We were approaching the major rollout of 3G networks. And at the same time, once again we were facing a new process. New ideas are always turning up. You can never rest on your laurels. If you do not stay at the cutting edge, always at the ready, someone else will take over.”

Author: Svenolof Karlsson & Anders Lugn

Contribute to this story