SURVEY - SWEDEN: Slowdown goes on: TELECOMS by Nicholas George: The IT sector continues to experience substantial cutbacks and layoffs
Financial Times; Dec 12, 2001
By NICHOLAS GEORGE
The building cranes still dominate the skyline around the Stockholm suburb of Kista, in what has been called Europe's "mobile valley", but the mood on the ground is much more sober.
Eighteen months ago, there seemed no end to the expansion of Sweden's IT sector, with the country ideally positioned to take advantage of the convergence of mobile telephony and the internet.
But the mobile internet has been slow in coming, and the venture capital which fuelled much of the boom has simply disappeared. In Stockholm, as in many other of the country's IT hotspots, cutbacks and layoffs have been the order of the day. Filling Kista's gleaming new office blocks is proving more difficult than expected.
Even Ericsson, the world's largest telecommunications equipment maker and Sweden's industrial flagship has been cutting staff and selling businesses in an effort to trim pre-tax losses of about Dollars 2.4bn in the first nine months of this year.
The company's big headache, its mobile handsets business, has been placed in a joint venture with Japan's Sony. However, its key infrastructure business has also seen margins slashed as the shift to new 3G mobile technology takes longer than expected and its customers, the telecom operators, struggle under their own debt.
Ericsson seems certain to survive the crisis, which is more than can be said for many of the start-ups which mushroomed in the past few years.
Indeed, so bleak have things become that the country's IT sector may soon overtake the restaurant trade as the branch in the economy where bankruptcies are most likely to occur.
A good example is Room33, a mobile services supplier, which, at its peak, employed 85 people and which filed for bankruptcy in November after burning through around Dollars 21m in funds.
Zaheed Haque, the founder and himself a former Ericsson employee, blamed the company's failure on several factors. "The third generation mobile licence biding, the mislaunching of WAP services and the financing not being there - everything melting together to mean we did not have many sales at all," he says.
Anders Kalmerstrom, marketing director of Oracle Sweden, also highlights the inflated expectations around 3G. "Because of the mobile boom, of which 3G was key, there was a lot of venture capital around, but it was pushing and financing 'bad' ideas and radical business models," says Mr Kalmerstrom
"When 3G failed to arrive, everything went down and, with hindsight, we can see that the market was not ready to use, or benefit from, all the new companies. When the economy went down, the money left Sweden," he adds.
Other new economy sectors have also fared badly with the country's expansive internet consultancies, once Europe's largest, a shadow of their former self. Few of the high profile e-retailers started by Swedes, such as Boxman, Dressmart, and, most notoriously, Boo.com have survived.
So, is there anything left of the IT boom that was to propel the country to a new level of growth and prosperity? Certainly, many international analysts appear to believe the country is well placed.
For example, Sweden came top of the OECD report as the world's most knowledge-based economy and, according to the EU's European Innovation Scoreboard, it has the best innovative climate among EU countries, the US and Japan. It has also scored highly in recent surveys of world competitiveness, largely as a result of its technological infrastructure and skills.
Moreover, there are still innovative companies that are gaining financing, says Sven-Christer Nilsson, one of the founders of the venture capital company, Start-up Factory, and a former Ericsson chief executive. He gives, as an example, Xelerated Packet Devices, a company which develops network processors and associated software for networking equipment, which, in October, received second round financing of Dollars 12m.
And while the mobile internet may be delayed, there are few who doubt its eventual arrival. Ericsson is already establishing itself as the leading supplier of 3G systems, helping to create the conditions in which smaller, innovative companies can spawn.
But Mr Nilsson warns that Sweden is in danger of losing out to the UK and southern Europe in developing the service applications which will spur consumers to use the new GPRS and 3G networks. "In southern Europe, the operators are obsessed with the ability to offer content to their customers. I don't see the same being done here," he says.
In the past year, there has been a tendency to equate the demise in IT stock prices, lack of risk capital and the troubles of Ericsson with a more fundamental malaise in the sector and its future prospects. Yet, away from the headlines, many of the country's old economy companies, such as SKF, the world's largest ball bearing producer, or Sandvik, the heavy engineering group, have integrated IT into their core businesses.
As for Mobile Valley, it still exists and while it may not be such a popular destination for the world's multi-nationals and venture capitalists, it is still an area well worth cultivating. |
