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What's going on?
The CEO of Ericsson, the provider of telecoms infrastructure like 3G and 4G networks, has (effectively) been turfed by the companys Board of Directors. The stock jumped more than 1% – seemingly on optimism that somebody new can do a better job (the stock was up more than 5% immediately after the news broke before falling back as the day went on).
What does this mean?
Clients of Ericsson, like AT&T and Telefonica, spent heavily on improving their networks (e.g. to make 4G available) but in the past few years that spending has fallen. At the same time, competition for Ericssons infrastructure offering has increased, particularly from the relatively new Chinese competitor Huawei (which has put pressure on the prices that Ericsson can charge it customers).
Why should I care?
For the stock: Investors await a new CEO and a new strategy.
It will likely take at least a few months for a new CEO to be found and probably even longer for him or her to start work. Typically, a new CEO will undergo a strategic review before implementing a new strategy based on that review. So Ericsson investors are probably in for a bit of wait before learning of the companys new direction. The new strategy could involve Ericsson being more aggressive with mergers and acquisitions (rival Nokia cemented a merger with Alcatel-Lucent last year).
The bigger picture: Ericssons CEO had some other things going against him as well.
The company is the subject of a corruption probe in the US and other countries concerning various activities (although there are no allegations that the CEOwas personally involved in the wrongdoing). His penchant for private jet travel and his role as Chair of Swedens Olympic Committee didnt play well given the company is undergoing a big cost-cutting program that involves lots of layoffs.
Originally posted as part of the Finimize daily email.
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