Ericsson's Svanberg Expects Four 3G Licenses in China (Update2)
March 8 (Bloomberg) -- Ericsson AB Chief Executive Officer Carl-Henric Svanberg said China is likely to hand out four licenses for fast wireless services this year and the company expects to hold on to its market share in the country.
``The way we read it they are very much back into rolling out four licenses'' for so-called third-generation, or 3G, wireless services, Svanberg said yesterday in an interview at Ericsson's headquarters in Stockholm. Ericsson, the world's largest maker of mobile-phone networks, has ``a good chance of defending'' its 35 percent market share in China, he said.
China will decide how many licenses and which 3G standards to use. Ericsson, along with Finland's Nokia Oyj, belongs to a group promoting one 3G standard, while a group led by Germany's Siemens AG and Beijing-based Datang Mobile Communications Equipment Ltd., a government-owned phone equipment maker, is promoting another. The groups have agreed to cooperate to make their systems compatible and help speed up China's decision.
``There is a lot of interest in this because it's probably the next wave of big contracts in this industry and we're talking about some very large contracts,'' said Bertrand Bidaud, an analyst at Gartner Inc. in Singapore. ``The Chinese market is very large. In terms of subscribers, it's the world's largest.''
Ericsson shares fell 0.1 krona, or 0.5 percent, to 20.6 kronor as of 9:51 a.m. in Stockholm.
Chinese Competitors
The GSM Association, where Ericsson is a member, is offering the 3GSM standard using global system for mobile communications, or GSM, technology and WCDMA, or wideband code division multiple access. The competing TD-SCDMA Forum group is developing its own standard for 3G called division synchronous code division multiple access. Such faster services allow phone users to download music or hold video calls.
Svanberg said he's ``sure'' Chinese competitors will get 20 percent of the network gear market in the world's most populous nation. Ericsson's relationship with China stretches back to the 1890s, when it installed a telephone exchange in Shanghai.
China's mobile-phone subscribers reached 334 million at the end of last year and fixed-line users totalled 316 million, the People's Posts and Telecommunications News, the information ministry's official publication, reported in January.
Hiring Plans
Ericsson's fourth-quarter net income was 6 billion kronor ($877 million), the highest since 2000. Increased demand and cost cuts brought Ericsson back to profit in the final quarter of 2003. Customers including China's Hebei Mobile Communication Co. are upgrading networks to cope with higher traffic after three years of lower spending on switches and base stations.
About two-thirds of Ericsson's sales are still driven by GSM and ``will be for a long period of time,'' the CEO said.
Svanberg, 52, accelerated job cuts started by former CEO Kurt Hellstroem, bringing the workforce to 47,000 by April 2004 from 105,000 at the end of 2000. He also started efforts to cut annual production costs by 8 billion kronor, which came into full effect in the third quarter. Ericsson reduced annual operating costs to 33 billion kronor by the end of the second quarter, one quarter earlier than planned.
``We've done the cutting and we've started to hire although we're hiring in a rather slow pace,'' Svanberg said. ``It's back to a more normal situation where we hire where we grow.''
Ericsson will probably hire 500 to 1,000 people in the coming year, Svanberg said.
Profitability
``We're enjoying strong margins and we can continue to do so if we hold on to our position,'' Svanberg said.
Ericsson's operating profit was 24 percent of sales in the fourth quarter. The company has forecast the margin will remain in the high teens for the next one to two years.
``The good margins means the pricing pressure isn't dramatic,'' said Sanjay Jhaveri, a fund manager at Vontobel Asset Management Ltd. in Zurich, which holds Ericsson stock in the $43 billion it manages. ``Would they be hiring if it was?''
Ericsson can probably ``live well'' on its own, Svanberg said. To consider a takeover ``you need a great case, otherwise an internal job is better,'' he said.
``When you look at an industry where we have seven, eight players of course you could imagine that there could be one or two mergers taking place,'' he said. ``Whether you will see a mega-merger or not I'm not ready to guess. It could happen.''
Possible Buyback
When asked whether Ericsson might buy back stock, Svanberg said that with a couple of years of ``strong earnings and cash generation and so on, maybe that would be a discussion to bring up then. It's not a discussion today.''
A buyback ``could be earlier if they wanted to,'' Vontobel Asset Management's Jhaveri said. ``They are overcapitalized.''
Ericsson ended 2004 with net cash of 42.9 billion kronor.
Cost cuts and increased demand for Ericsson's products led Standard & Poor's Corp. and Fitch Ratings to raise the company's credit rating back to investment grade, or BBB-, in the past two weeks. Moody's Investors Service also raised its rating one level on March 1 to Ba1, still one step below investment grade, and said it may increase it again.
Ericsson's shares have more than tripled since Svanberg was appointed on Feb. 6, 2003. The 129-year-old company's stock is still only worth one-eighth of its peak price in March 2000.
Before joining Ericsson, Svanberg had been CEO at lockmaker Assa Abloy AB since 1994. Before Assa Abloy, created from the merger of the lock businesses of Securitas AB and Finland's Metra Oyj, Svanberg was head of alarms and locks at Securitas, the world's largest provider of security services.
Svanberg, who has a Master of Science from the Linkoeping Institute of Technology and a Bachelor of Science in management from Uppsala University, started his career at engineering company ABB Ltd.
Born in the Swedish town of Porjus, situated within the Arctic Circle, Svanberg used to play ice hockey for Bjoerkloeven's junior team in Umeaa.
Svanberg, whose main hobby is sailing, said working for Ericsson and being in the wireless equipment industry is still like ``white-water rafting.''
To contact the reporter on this story:
Maria Tornlund in Stockholm at mtornlund@bloomberg.net; John Dawson in Stockholm.
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