Ericsson: Svanberg halved the workforce, cut R&D 85 sites to 25 and returned to profit

Ericsson entered the decade as the leader of mobile infrastructure — and the telecom crash gutted it. Net sales collapsed from SEK 273.6B in 2000 to SEK 117.7B in 2003, while net losses accumulated to SEK 51B across 2001-2003. The 2002 report records rating downgrades and a rights issue that 'raised SEK 29 billion net in increased cash' simply to fund survival. Carl-Henric Svanberg, chief executive of Atlas Copco, took over as Ericsson's chief executive in April 2003.

His 2003 shareholder letter leads with the promise kept: 'We kept our promise to return to profit.' The cost programs begun under predecessor Kurt Hellström and deputy CEO Per-Arne Sandström were expanded and accelerated in April 2003 to cut cost of sales and operating expenses, 'creating a profitable cost basis'. The workforce fell from 107,000 to 51,600 in three years — 'many talented people had to leave us, but firm measures were required'.

The deeper decision was concentration: R&D was consolidated from 85 development centers to 25 and the number of technology platforms slashed, putting 'more of our time, energy and money behind our most valuable products and services'. Working-capital discipline turned the company cash positive — a net cash position of SEK 27B — while most of the 2002 rights-issue proceeds stayed untouched. Ericsson defended, not surrendered, its leadership: largest market share in GSM (2G) and WCDMA (3G).

In 2004 the turn was confirmed in the numbers: net income of SEK 19.0B against a SEK 10.8B loss the year before, sales recovering to SEK 132.0B, a first dividend since 2000, and — as Svanberg wrote in the 2004 letter — 'restructuring and downsizing behind us, spirits are up throughout the company', with selling expenses down 50% over two years and roughly 650 million of the world's 1.7 billion mobile subscriptions running on Ericsson technology.

2004: net income SEK 19.0B versus SEK -10.8B in 2003; sales up to SEK 132.0B; first dividend since 2000; net cash SEK 27B; largest market share in GSM and WCDMA.

Ericsson cut to a defendable core — mobile systems — instead of cutting evenly, consolidating 85 R&D centers into 25 so scarce engineering money concentrated on products with volume and leadership.

The 2002 rights issue bought time, and management refused to spend it: preserving SEK 27B of net cash through the trough meant no forced sales or dilution at the bottom.

Accelerating the cost program in mid-2003, rather than letting it drift, moved the break-even point below the depressed demand level before competitors finished their own restructurings.

Market share was treated as the asset worth defending; entering the 3G upgrade cycle as the share leader turned the industry's recovery into Ericsson's recovery.

In a market collapse, cut to a core you can defend rather than to a target number: concentrate R&D, keep the balance-sheet cushion, and defend market share so the rebound compounds.

The repaired company became the 3G era's prize. Entering the industry recovery with the largest GSM and WCDMA share, cutting-edge margins restored and a fortress balance sheet, Ericsson rode the global mobile-broadband build-out that followed. The 2004 letter closes with a five-element strategy and a shift from technology-driven to consumer-driven markets — the foundation for the equipment leadership the company kept through the smartphone decade. Svanberg, who arrived as a temporary crisis appointment, stayed a decade before leaving for Shell.