An Interview with Kurt Hellström, President of Ericsson

Kurt Hellström has been President of Telefonaktiebolaget LM Ericsson since July 7, 1999. He joined Ericsson in 1984. He has held various senior positions in the mobile business, with focus on marketing and sales. From 1989 to 1990 he was head of Radio Systems Sweden AB. From 1990 to the end of 1998 he was head of Ericsson Business Area Radio Communication and President of Ericsson Radio Systems AB. In 1999 he was appointed Vice President of Telefonaktiebolaget LM Ericsson and President of Ericsson Asia Pacific Limited in Hong Kong. Before joining Ericsson, he was previously employed with AB Teleplan (1969-1973), Junger Instrument AB (1974-1978) and ITT Standard Radio & Telefon (1978-1984). Mr Hellström holds a Master of Science degree from the Royal Institute of Technology in Stockholm and a Master of Management degree from the Stockholm School of Economics.

TWST: Let's start with a brief overview of Ericsson.

Mr. Hellström: We are celebrating 125 years next year, so the company was started in 1876. Today at Ericsson, we have 103,000 employees, we are present in 140 countries around the world, and our turnover in 1998, which are the latest published figures, was roughly $23 billion. About 70% of our products are in the cellular market. Approximately 50% are related to mobile/ cellular systems for all four existing standards today and the cellular phones accounts for 20%. Data communications and traditional narrow-band circuit switching, accounts for about 25%. The rest is military electronics, cables and components.

TWST: Can you tell us what Ericsson's competitive advantages are, Kurt? What sets the company apart from the competition?

Mr. Hellström: I think that one of the key competitive advantages of Ericsson is our global reach and our presence in 140 countries. Our activities are very well distributed over the world, which we can see when markets are going up and down but not Ericsson. Due to our truly global market presence we can compensate in one place what we drop in another. That is the key strength of Ericsson. For years we have invested approximately 15% of sales in R&D and this is a true strength. It's interesting to notice that most of the products that we sell today didn't exist three years ago. This illustrates the fast pace of development in our business. We are continuously working to improve the efficiency of our R&D activity so that we can be more competitive with faster time-to-market and lower costs. And today, what we are investing in is mobile systems and the focus is on the third generation system. Another focus is data communications and the Internet and various hardware and software equipment for Internet and then, of course, for mobile terminals of different kinds. That's a key area of investment for us.

TWST: Now, can you comment on how you think the AOL/Time-Warner merger will affect the industry and your company?

Mr. Hellström: I don't see any direct impact of that on Ericsson, but it's interesting. It's in line with what we have said for quite some years now with the consolidation in the industry - and I'm now talking very broadly about the information industry, of which I include telecommunications, data communications, and now we also see the content. As we are about 70% a systems company, so when traffic is growing in the networks, be it voice communications, data communications, video or whatever, it benefits us because more infrastructure is needed. We appreciate increasing traffic in the system - that means good business for us.

TWST: What other significant changes or developments do you expect, or do you foresee taking place in the future for your industry and your marketplaces?

Mr. Hellström: Well, to be very brief, it's mobile Internet. We had a very interesting press release here in London the other day, where Vodafone/AirTouch announced their new strategies for providing global multimedia service on a worldwide basis and creating a portal with partners like Ericsson, IBM, Nokia and content providers. This is exactly what we had predicted. It will help to grow the number of users and also the usage of the Internet and access by wireless terminals. This is something that's going to grow very fast, growing the traffic, and a lot of data communications technologies are needed. And this year we are rolling out a number of networks with the GPRS (general packet radio service), and this allows data speeds then up to 115 kilobits per second, which will greatly enhance the value of these wireless services. Ericsson has about 60% of the GPRS market.

TWST: Where do you see the company being, say, in two or three years? What are your plans or your goals for the company?

Mr. Hellström: We are very strong in mobile systems, and this is our key area - to make sure that now, with the transition into the third generation, we maintain our high market share in this area. So our first objective is to continue to be the number one in mobile systems. Then of course, we are also focusing on terminals because it's about end-to-end solutions, and we think that terminals are a tremendously growing market, very fast-growing. There will be a lot of new terminals coming into new networks where data communications are actually in the form of mobile Internet.So for the next five years it's really to develop the third-generation networks - and that means both greenfield networks like building on the new standard and new frequency bands. But it's also about migrating the present GSM, PDMA, CDMA or other networks that are providing these higher data speeds, which are necessary for mobile
Internet.

TWST: What role will acquisitions play in the company's future?

Mr. Hellström: We have made acquisitions to fill gaps in our road map to the future. In particular, we have focused so far on companies having special products or skills in data communications and Internet technologies. We have a number of collaborations with various players, and sometimes these turn out to be continuing into our ownership for acquisitions and so on. I think we have been very successful with the so-called string-of-pearls strategy that Ericsson has. We have acquired a number of not-very-big-but-very-advanced companies that have fit very well into our picture. We are today able to provide everything – total solutions in data communications in the Internet field - and we certainly are going to see Ericsson acquire other players also in the future. But we haven't targeted any very big acquisitions. We haven't been able to justify that.

TWST: What rate of gain do you anticipate in sales and earnings for the company over the next two or three years?

Mr. Hellström: We have our long-term growth goal which we have communicated, and that is to grow with the market and that is at least 20% or more per year.

TWST: What are the major risks or concerns facing the company now and that will be facing the company in the future?

Mr. Hellström: First of all, I would like to conclude that we are in the leading position of mobile communications and technology. Especially when it comes to the next generation. Ericsson is the leader in third generation networks and Mobile Internet. So I think we are in a very strong position for the future. We are in strong competition. I think the market, as we see it in communications is very well-known to us, and it's a market which is in very fast development. There are a number of issues that we have to solve along the way, but I think that we also know how we are going to deal with these. But in all respects, when you are talking about very rapid growth, you are talking about tough competition and we are, as I said, also having a discontinuity in the respect that we are going into a new world - new technology and a new generation.

TWST: Now, how's your management team doing? Are they equipped to accomplish your ambitious goals?

Mr. Hellström: I am quite confident. I know the people very well. Many of us have been working the last nine, ten years together in growing mobile communications, which represents about 70% of Ericsson. So these are people who are used to rapid growth and also know this market and know the environment that we are working within very well. Of course, there are a lot of changes that we have to cope with. And coming back to what I said just a moment ago, that Internet represents a tremendous opportunity, it's also something that we have to deal with internally because more and more of our own sales and interaction with customers and so on is going via the Net. That will change Ericsson. Also, we are changing in that we are less and less a manufacturing company. We have been outsourcing a lot of our manufacturing, but we are growing in R&D and in marketing all the time. So that changes, of course, Ericsson, and this has been going on for some years now.

TWST: Now, can you describe the corporate culture at Ericsson? How have you tried to develop the culture, and how successful have you been in doing so?

Mr. Hellström: Well, this is the 16th year I've been with Ericsson. I've been in mobile cellular communications all the time, and that has been, as you can understand, a very fast, rapidly-growing area. Therefore, it seems like the culture which exists in this is quite an entrepreneurial culture where speed is really important in all aspects. And I think we have changed because we have grown within Ericsson, so the total Ericsson culture is changing and has changed. When I joined Ericsson, it was a company that was dealing with PTTs in the world; now we are dealing with almost everything but PTTs. This has had a tremendous impact on the culture in the company - and probably one of a new culture, together with the people around me.

TWST: What should long-term investors focus on in reading your financial reports?

Mr. Hellström: They have been focusing on our growth, of course, and the growth potential because of the industry we are in. We have also worked a lot on having them understand that we are not only a mobile telephone company, meaning cellular phones; we are a systems company with phones. Of course, already in the '80s we had taken the leading position in cellular systems, and we have kept that position, and of course, that's just one of our key objectives, to make sure that we maintain, or even strengthen our position when we go into the new generation – and actually, until the third quarter last year we've continued to grow our market share.

TWST: How do you feel about your current stock price?

Mr. Hellström: Well, I've been in this position for half a year now, and I think the investors and the markets see that Ericsson is more focused, and they also realise the tremendous potential and the power of mobility. The market is starting to understand the message we are conveying - that mobility is the main driver for both telephony and the Internet. Ericsson is in the driver position.

TWST: What other reasons would you give long-term investors to invest in Ericsson?

Mr. Hellström: I think our global presence, our technology, and our position in key areas, like in mobile systems, in mobile telephones. And that's one of our key objectives, to really establish a leading position in data communications for Ericsson. And our strength in wireless is one of the key elements, which will insure that Ericsson keeps its position in the future.

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