Instant Analysis: Ericsson CEO Steps Down

By Markets Fool.com

What happened?

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Struggling telecoms equipment maker Ericsson (NASDAQ: ERIC) is now in the market for a new leader following the sudden departure of its CEO. The company announced that Hans Vestberg has vacated the position, plus his seat on the board of directors, effective immediately. He will, however, make himself available "to support the board and management" for six months, the company said.

Outgoing CEO Hans Vestberg. Image source: Ericsson.

He has been replaced on an interim basis by Ericsson's CFO and executive vice president Jan Frykhammar. A search has been launched for a permanent replacement, the company said, and both external and internal candidates will be considered.

Vestberg had been CEO since 2010, and worked at the company for a total of 28 years.Fykhammar was named CFO in 2009; he joined Ericsson in 1991.

Does it matter?

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Although Vestberg's departure was sudden, it was far from unexpected. Ericsson has not done well in the face of a global slowdown in spending on telecoms equipment.

Compounding this has been increased competition from peerNokia (NYSE: NOK)-- which not long ago closed the acquisition of fellow European equipment makerAlcatel-Lucent -- and budget-priced competitors, most notably China's ambitious Huawei Technologies.

Those pressures have had a negative effect on fundamentals and share price. The company's most recently reported quarter saw declines in both the top and bottom lines, and it missed earnings estimates in each of its last four quarters. Meanwhile, in terms of its market value, share price has dropped by 31% over the past year, more than double that of Nokia. As if that weren't enough, the company has admitted that it is under investigation by U.S. authorities over possible violations of the country's Foreign Corrupt Practices Act.

Ericsson said it would continue to implement a set of cost-cutting measures -- including layoffs -- it announced recently.

That, plus new leadership, might help turn the corner for the company. But just now, the business cycle isn't favoring Ericsson, Nokia, and their ilk, and that low-priced competition is tough to fight. Ericsson will have many challenges going forward, no matter who ends up running the company.

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