Ericsson boss bemoans lack of European support on 5G
SHANGHAI, China — Amid a global storm over 5G security, Swedish telecom giant Ericsson feels abandoned by Europes politicians.
One of the blocs last technology powerhouses, the company is grappling with a failure by EU politicians to support European businesses against foreign rivals that have the backing of their home governments.
“You know, you cry for your own mother, right,” Ericssons Chief Executive Officer Börje Ekholm told POLITICO on the sidelines of the recent Mobile World Congress in Shanghai.
“We survived 140 years, well survive another 140. But we may need to do it by being stronger outside Europe than inside it,” the 56-year-old executive said.
The frank comments underscore widening frustration among European industrialists and tech executives at a time when politicians are sounding the alarm about technological decline and a rising dependency on foreign companies.
The stakes are high for Ericsson. The Swedish company is emerging from a deep financial dip.
So far Ericsson has held on to its global standing amid a rivalry with Chinese telecom giant Huawei, which faces new restrictions in the United States, Australia, Japan and, potentially, in European Union member countries in the coming months.
But while Ericsson theoretically stands to gain from such restrictions, its Chinese rival remains as strong as ever, namely in European markets where the companies compete fiercely for contracts against each other, as well as against Finlands Nokia.
Europe is making some efforts to protect homegrown business.
Amid growing calls for tougher trade restrictions led by French President Emmanuel Macron, the EU is working on trade defenses, competition tools and public procurement policies — including potential restrictions on Chinese firms — that match similar protective measures in the United States and China, and could one day help European tech companies.
The Mobile World Congress in Shanghai in June | Hector Retamal/AFP via Getty Images
Yet most of these are only in the planning stages. Ericsson argues that for now, support for local enterprises remains weak in its home country of Sweden and across the European Union, bolstering the confidence of its rivals.
“We get more support in other geographies than we get in Europe,” Ekholm said, referring to incentives for investment. “We have almost the weakest market share in Sweden … Our competitors think that, if you can win in Sweden, you can market that to every other operator globally by saying: Look, we can even win in Sweden.”
The Swedish government declined to comment.
No place to call home
The stakes are high for Ericsson.
The Swedish company is emerging from a deep financial dip. Its net sales took a dive in 2016 and again in 2017, after years of stagnation between 2011 and 2014. Last year Ericssons sales grew with 3 percent. In comparison, Huaweis revenue tripled between 2013 and 2018, company figures say.
Contributing to Ericssons struggles was the fact that European telecom operators like Deutsche Telekom, Vodafone, Telefónica and others appealed heavily to Huawei to install wireless 4G networks over local alternatives.
Today, those same operators are banding together to keep the European market open for the Chinese giant.
Ericsson headquarters in Stockholms suburb of Kista | Jonathan Nackstrand/AFP via Getty Images
Since taking over Ericsson in January 2017, Ekholm has succeeded in turning the company around largely thanks to an aggressive cost-cutting effort that shed 15,000 jobs and several business units too distant from the firms core activities. Ekholm also boosted research funding by 20 percent in his first year. Last year, the firm turned a profit again.
But Ericsson is now battling to maintain its global position. In an ever-fiercer battle for a share of the global 5G market, its Chinese rival is investing enormous resources in research and tailoring its attractively priced bids to European markets.
While Ekholm insists that his company is focused purely on business results, he said he was baffled by the lack of political support for firms like his.
“There is a real issue,” he said.
Asked why he thinks European politicians are so squeamish about helping their own companies, he said: “I genuinely dont know. And I dont know if we can do anything about it.”
Betting on abroad
As a result, Ekholm underscored that Ericsson is more hopeful for its prospects in faraway markets than at home.
“There is no use in being frustrated about this,” he said. “Its better to look at what we can do. Which is why we look at what we can do [in China], and we look at what we can do in North America … Thats the best thing we can do.”
Part of Ericssons approach is to build up capacity in non-EU markets.
The company operates a factory in Tallinn, Estonia, but also runs plants in Nanjing, China and São José dos Campos, Brazil. It works with manufacturers across the world, including in India and Mexico.
If Europe moves to restrict Chinese vendors it could trigger retaliation from Beijing that would severely hurt Ericssons bottom line — as well as telecoms operators and other industry players plans.
Late last month, it added a big investment in the United States, announcing that it is launching a state-of-the-art “smart factory” in a U.S. location that remains to be determined, pending negotiations with state and local authorities. The multimillion-dollar investment is scheduled to be operational by early 2020.
The choice underscores Ericssons need to develop its business — and survival — outside Europe. Over the past few years the Swedish company has ramped up spending on research and development in the U.S., with investments in partner facilities in Texas to research microelectronics, and direct spending on software development.
Less than a year ago it said it would invest more to speed delivery of products in the U.S. market and help its effort to deploy 5G across the country.
U.S. lawmakers have applauded such investments, namely the Federal Communications Commissions Ajit Pai, who said last month that Ericssons move is “good for our economy, good for the supply chain, and good for the rapid rollout” of new networks.
A similar need dictates Ericssons approach to China.
The company is squaring off against Nokia, as well as Huawei and ZTE, to win contracts with Chinese telecoms operators for the deployment of 5G across 40 cities.
In terms of sales of 5G equipment, China has “probably more than ten times what you have in North America and at least five times what you have in Europe,” Ekholm said. He added that Ericsson, Nokia and Huawei are “all investing in providing innovative solutions that will help the development of the global market. Thats why I think there is a role for us [in China].”
Amid a global storm over 5G security, Swedish telecom giant Ericsson feels abandoned by Europes politicians | Josep Lago/AFP via Getty Images
“We have a factory here since 20 years or so. We have quite strong local manufacturing here,” Ekholm said, adding the company keeps early research and production in-house, but also outsources production lines for “mature solutions” to third-party manufacturers in China and elsewhere.