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Telefonaktiebolaget LM Ericsson

Telefonaktiebolaget LM Ericsson

S-126 25 Stockholm
Sweden
Telephone: (08) 719 00 00
Fax: (08) 18 719 1976
Web site: http://www.ericsson.com

Public Company
Incorporated:
1918 as Allmänna Telefonaktiebolaget L.M Ericsson
Employees: 105,129
Sales: SKr 273.6 billion ($29 billion) (2000)
Stock Exchanges: Stockholm NASDAQ Swiss Düsseldorf Frankfurt Hamburg London Paris
Ticker Symbol: ERICY
NAIC: 33421 Telephone Apparatus Manufacturing; 33429 Other Communications Equipment Manufacturing

Telefonaktiebolaget LM (Ericsson) is one of the worlds largest telecommunications concerns with the largest customer base across the globe. With operations in over 140 countries, Ericsson has three main divisionsMobile Systems, MultiService Networks, and Consumer Productsthat focus on providing products and services related to network management tools, data backbone and optical networks, and Internet applications. During 1999 and into the new millennium, Ericsson was involved in major restructuring efforts due to increased competition and falling revenues.

Growth During the Late 1800s and Early 1900s

The company bears the name of Lars Magnus Ericsson, an engineer who founded a workshop to repair telegraph machines in Stockholm in 1876. At first, Ericsson only worked with telegraph equipment, but that changed in 1877 when the newly invented telephone reached Sweden. LM Ericsson began producing telephones the next year, but sales were disappointing because the American Telephone and Telegraph Company (AT&T) had a virtual monopoly on telephone service in Sweden and used its own equipment. AT&Ts Bell subsidiaries faced no serious competition in Sweden until 1883, when engineer Henrik Tore Cedergren founded Stockholms Allmänna Telefonaktiebolag (SAT) to provide telephone service and purchased his equipment from LM Ericsson.

Another boost to LM Ericssons fortunes appeared in the 1880s in the form of an expanding export market. In 1881, the companys international business was very small and limited to other Nordic countries. By the end of the decade, however, its telephones were appearing in western Europe, Great Britain, and Russia. If LM Ericssons export business expanded in the 1880s, it exploded in the 1890s. The company began selling telephones in Australia and New Zealand. Late in the decade it sold telephone exchanges that switch calls, as well as telephones in South Africa. During the Boer War, LM Ericsson supplied field telephones to the British armed forces. In 1899, LM Ericsson opened its first foreign factory, in St. Petersburg, Russia; by the turn of the century it had begun selling telephones in China and the South Pacific.

In 1900, exports accounted for about 90 percent of LM Ericssons total sales. Contraction of demand in the domestic market and rapidly expanding foreign markets were partly responsible for this dominance of exports. Telegrafverket, the state-run telephone company, and SAT had been Ericssons principal customers in Sweden, but both decided to set up their own manufacturing subsidiaries. Telegrafverket did so in 1891 and SAT in 1896. Nonetheless, Ericssons annual sales went from SKr 500,000 in 1890 to SKr 4 million in 1900.

Ericsson incorporated in 1896 as Aktiebolaget LM Ericsson & Company, with Ericsson serving as chairman, president, and sole shareholder. He retired as president in 1900 and was succeeded by Axel Boström, his former office manager. Ericsson stepped down as chairman the next year and died in 1926.

Even without the guiding hand of its founder, Ericsson continued to conquer international markets in the years leading up to World War I. It began selling equipment in Egypt and set up manufacturing subsidiaries in Great Britain, the United States, France, and Austria-Hungary. It also began installing telephone exchanges, joining with SAT to set up a network in Mexico in 1905. Relations with SAT, all but severed in 1896 when it began manufacturing its own equipment, were repaired in 1901 after SAT acquired telephone concessions in Moscow and Warsaw. Realizing that his production capacity was inadequate to supply these new markets, Henrik Cedergren agreed to merge his manufacturing operations with Ericssons. SAT sold its subsidiary, AB Telefonfabriken, to Ericsson in exchange for Ericsson stock.

Ericsson suffered during World War I as hostilities cut off most of its foreign markets. Exports were limited to Russia and neutral countries. The Russian market dissolved in 1918 when the new Bolshevik government nationalized Ericssons Soviet operations, seizing about SKr 20 million worth of assets. Despite these setbacks, the companys sales continued to rise, from about SKr 9 million in 1913 to SKr 14 million in 1920.

The most important event of the World War I years was Ericssons merger with SAT in 1918. The two companies had been allied for decades, with a short separation after the establishment of AB Telefonfabriken. The companies decided to pool their assets in the uncertain war years. The new entity was called Allmänna Telefonaktiebolaget L.M. Ericsson. Arvid Lindman of Ericsson was appointed chairman, with Hemming Johansson of Ericsson and Gottlieb Piltz of SAT serving as co-presidents.

The Kreuger Debacle: 1930s

In 1921, an attempt to hammer out a worldwide telephone cartel agreement between Allmänna Telefonaktiebolaget L.M. Ericsson, AT&Ts Western Electric subsidiary, and a German engineering firm, Siemens & Halske, fell through, and the three giants of the telephone business spent the rest of the decade battling with each other along with a U.S. firm, International Telephone and Telegraph Corporation (ITT), in the worlds markets. In 1926, the company dropped Allmänna (general) from its name and became known by its present name. Ericsson had become one of the most important players in its chosen arena, but by 1930, the company would find its survival in doubt as it was caught in the machinations of Ivar Kreuger, the notorious Swedish financier and confidence man. Kreuger rose to prominence in the 1920s, trying to forge an international monopoly in the production and sale of matches. He acquired the necessary financing, however, through fraud; he lied about the extent of his assets and the profitability of his previous ventures to gain credit. For years his deceits went undetected, and his empire grew. In the late 1920s he began to diversify, and he purchased Ericsson stock in 1926 and 1927. By 1930, Kreuger controlled Ericsson. Kreugers takeover had little effect on Ericssons operations, but the companys assets became another token in his pyramid financing scheme.

By 1931, the Great Depression had made it all but impossible to raise capital through the securities markets, so Kreuger was forced to take desperate measures to meet his debt obligations and keep his gossamer empire from disintegrating. In one last effort, he approached ITT chairman Sosthenes Behn and proposed to sell his Ericsson stock to ITT. He would sell ITT a controlling interest in Ericsson for $11 million, which he needed to make interest payments on his own bonds. Early in 1932, however, ITT backed out of the deal as doubts about Kreugers solvency began to emerge. ITT demanded its money back, but Kreuger had already spent it. Kreuger killed himself in March 1932.

After Kreugers death, an independent audit revealed that he had also embezzled $5 million in cash from Ericsson by replacing the money with illiquid French telephone bonds. His looting had bankrupted the company, and furthermore, he had delivered it into the hands of ITT, one of Ericssons major foreign competitors. Swedens three major banksSkandinaviska Kredit, Stockholms Enskilda Bank, and Svenska Handelsbanken-moved quickly to restore Ericssons liquidity and restructure the company. They also negotiated with ITT over its share of Ericsson, a process made delicate by the fact that Swedish law forbade foreign interests from exercising a voting majority in Swedish companies. Under agreements reached later that year, ITT was allowed a large, but not a majority, share of re-issued Ericsson stock, and Behn was given a directorship. The new Ericsson board met for the first time in May 1933, with former National Power Administration official Waldemar Borgquist as chairman. Marcus Wallenberg, Jr., of Stockholms Enskilda Bank was also appointed to head a special committee overseeing Ericssons finances. This marked the beginning of Wallenbergs long association with the companyhe became chairman in 1953and effectively added Ericsson to the Wallenberg family business empire.

The so-called Kreuger crash made the Depression doubly hard for Ericsson. Abroad, the company secured its market share by entering into cartel agreements with its competitors. At home, it cut back its work force and did not pay a dividend from 1932 until 1936. The outbreak of World War II did not make things any easier. The German invasion of Poland eliminated a foreign market that had been an important source of revenue, and Ericsson once again omitted its dividend in 1939. The company lost about a third of its export sales during the war as well as foreign assets that were destroyed or nationalized. On the other hand, Ericsson did benefit from Swedens military buildup and manufacturing of telephones, aircraft instruments, machine-guns, and ammunition for the military.

Company Perspectives:

We believe in an all communicating world. Voice, data, images, and video are conveniently communicated anywhere and anytime in the world, increasing both quality-of-life, productivity, and enabling a more resource-efficient world. We are one of the major progressive forces, active around the globe, driving for this advanced communication to happen. We are seen as the prime model of a networked organization with top innovators and entrepreneurs working in global teams.

Focus on Core Operations and International Expansion: 1950s60s

Only after World War II ended was Ericsson able to put the troubles of the 1930s behind it. Once again, Ericsson concentrated on its core telephone manufacturing business, and export markets played their traditional leading roles. During the war, domestic orders had accounted for a peak 80 percent of all sales, but this began to decrease steadily in 1946. By 1973, the ratio would be reversed; exports would account for about 75 percent of Ericssons sales, just as they had during the early 1920s. Despite the nationalization of its Mexican subsidiary in 1958, sales in Latin America and Australia boomed in the 1950s. Profits grew, and the company expanded steadily throughout the postwar years.

In 1951, Ericsson expanded its manufacturing capacity in the United States by acquiring a majority interest in North Electric Company of Ohio for $1.7 million. In the early 1960s, however, North Electrics orders from General Telephone Corporation and the U.S. Air Force fell off sharply and the company began to lose money. In 1966, Ericsson sold a 52 percent interest in the subsidiary to United Utilities, a telephone and utilities concern that had become North Electrics main customer. Ericsson sold its remaining interest to United Utilities in 1968.

In 1960, Ericsson finally rid itself of Ivar Kreugers legacy. After several years of negotiation, Marcus Wallenberg, Jr., purchased an option on ITTs entire stake in the company, which consisted of almost 1.1 million shares of preferred and common stock worth a total of $22.7 million. All of the common shares were subsequently sold through underwriting syndicates, and 200,000 of the preferred shares were sold on the open market, with the remaining 438,000 divided between Providentia, a Swedish trust company, Svenska Handelsbanken, Skandinaviska Enskilda Banken, and Ericsson itself.

Ericsson pared back its non-telephone business in the 1960s. In 1963, it sold off ERMEX AB, a subsidiary that produced electric cattle fences and locks. In 1968, it divested its electricity-meter operations when it sold another subsidiary, Ericsson Mätinstrument, to the Swiss engineering concern Landis & Gyr. At the same time, it savored its reputation as the worlds premier non-U.S. telecommunications company. The crossbar switching system, which it had pioneered in the early 1950s, formed the basis of telephone networks in many countries. In 1973, Ericsson attempted to expand its share of the British market by entering into a joint venture with electrical manufacturer Thorn Electrical Industries to produce telephone exchanges.

Development of the AXE System: Mid-1970s

Ericsson fell behind competitors like ITT, GTE, and Siemens in technological development in the late 1960s and early 1970s. That changed in 1976, however, when Ericsson introduced its AXE switching system. The AXE was the first fully digital switching system, converting speech into the binary language used by computers. Its competitors still used the slower and less-reliable analog system, in which electric currents conveyed the vibrations of the human voice. The AXEs modular software and hardware gave it another edge over its rivals, making it easier to manufacture and test as well as easier for customers to repair and modernize. The system was an immediate success, winning virtually every major international telecommunications contract for two years after its introduction. Björn Svedberg, the young engineer who led the AXE development team, was appointed president of the company in 1978.

In 1980, Ericsson purchased a controlling interest in Datasaab, a struggling computer manufacturer that had been jointly owned by Saab-Scania and the Swedish government. Ericsson used this acquisition as the starting point of a major effort to enter the U.S. office automation market. Ericsson also modified its powerful MD-110 PBX switch, a central-office switch, to suit the needs of U.S. customers, and in 1983, it entered into a joint venture with Honeywell to market the MD-110 in the United States and to develop other telecommunications products. Previously a bit player in the United States, Ericsson realized that it needed to play a major role there to ensure its prosperity.

In 1985, however, Ericsson discontinued the sale of personal computers in the United States after selling only 3,000 units, or one-fifth of its goal for the year, and technical problems with the MD-110 suggested that it had been brought to market too quickly. Ericsson laid off 500 employeesone-quarter of its work forcefrom its money-losing U.S. operations.

Key Dates:

1876:
Lars Magnus Ericsson establishes a workshop to repair telegraph machines in Stockholm.
1878:
LM Ericsson begins manufacturing telephones.
1883:
Telephone service provider Stockholms Allmänna Telefonaktiebolag (SAT) is created and buys its equipment from LM Ericsson.
1886:
The firm incorporates as Aktiebolaget LM Ericsson & Company.
1899:
The first foreign factory is opened in Russia.
1901:
Ericsson acquires SATs manufacturing operations.
1918:
The company merges with SAT to form Allmänna Telefonaktiebolaget L.M. Ericsson.
1926:
The firm officially adopts the name Telefonaktiebolaget LM Ericsson.
1931:
Ivar Kreuger proposes to sell a controlling interest in Ericsson to competitor ITT.
1951:
Ericsson acquires a majority interest in North Electric Company of Ohio.
1960:
Wallenberg Jr. purchases ITTs stake in Ericsson.
1963:
The company begins selling assets in an effort to focus on its telephone businesses.
1976:
Ericsson introduces the AXE switching system.
1985:
The company is awarded its first AXE contract from British Telecom.
1988:
Nokia Corp. buys Ericssons computer business.
1994:
Ericsson is now operating as one of the worlds largest manufacturers of telephone apparatus, radio communications instruments, cellular mobile phone telephone switching systems, and cables.
1998:
Sven-Christer Nilsson is elected president and CEO.
1999:
Ericsson and Qualcomm Inc. settle a patent dispute and Ericsson purchases the firms wireless infrastructure business.
2001:
Ericsson announces a mobile phone business joint venture with Sony Corp.

At the same time, however, the AXE system continued to prove a tremendous success; in 1985 Ericsson won its first AXE contract from British Telecom, worth $140 million. Also in 1987, Ericsson gained 16 percent of the French telephone-switching market when the French government accepted its bid for Compagnie Générale Constructions Téléphoniques, an ailing switch-maker. This coup was especially prestigious because Ericsson bested its two largest international competitors, AT&T and Siemens.

Profits Rise: Late 1980s to Mid-1990s

Faced with the vitality of its core switching business and the relative torpor in its data-processing business, Ericsson decided to divest the latter and refocus on the former in 1988, abandoning its vision of producing its own automated office system. It sold its computer and terminal operations to Nokia Corporation, a Finnish concern, for $217 million. With this sale, Ericsson prospered. It laid the groundwork for future profits by winning contracts for switching equipment from the U.S. regional Bell companies that were formed when AT&T was broken up. Ericsson also benefited from a surge in the demand for cellular phone service, and the quality of its products enabled Ericsson to capture 40 percent of the worlds cellular systems market. The companys position solidified in 1989 when an Ericsson-backed design for digital mobile radio transmission was selected over entries from AT&T and Motorola as the U.S. standard by the Cellular Telecommunications Industry Association.

In 1988, Ericsson amassed gross profits of Skr 1.2 billion, a 60 percent increase over the previous year. Profits continued to grow throughout the end of the decade, and the company continued to expand its position in overseas markets. In 1990, telecommunications giant Nippon Telephone and Telegraph chose Ericsson, Motorola, and AT&T to be its partners in a plan to jointly develop a digital mobile telephone system. The move was expected to give Ericsson valuable access to Japans burgeoning mobile phone market. In 1991, the company strengthened its position in Europes cellular phone market when it acquired 50 percent of Orbitel Mobile Communications, the manufacturing subsidiary of British concern Racal Telecom PLC. The following year it purchased a majority interest in Fuba Telekom, a German telecommunications concern.

By now, Ericsson had risen a long way from the nadir of the Kreuger crash. As a large corporation with a small domestic market, it relied heavily on export markets for most of its revenues and despite its size disadvantage relative to international competitors, Ericsson worked its way to the top of the telecommunications industry by the early 1990s. In fact, it stood as one of the worlds largest manufacturers of telephone apparatus, radio communication instruments, cellular mobile phone switching systems, and cables by 1994. Income for 1995 rose by 36 percent over the previous year to SKr 7,610 million$1.1 billionwhile orders rose by 25 percent.

Ericsson spent the next few years determined to remain a market leader. During 1996, the firm launched two new cellular phones that utilized digital control channel technology and were supported by Time Division Multiple Access (TDMA), an operating standard used by nearly all U.S. markets. Ericsson also purchased the remaining interest in Oribitel and the remaining stake in its joint venture with Raychem Corp. that had been formed two years earlier. The venture, entitled Ericsson Raynet, was created to develop and market fiber networks for phone access networks.

That year, Ericsson logged record results. Orders, sales, and earnings increasedas they had for the past five yearsand the firm had grown to serve the worlds largest customer base. The company attributed much of its success during this time span to its focus on research and development. During 1996, the company increased research and development spending by 50 percent over 1995 spending and employed 18,000 R&D engineers in factories across the globe. The following year, Ericsson announced that it would restructure operations into three business segmentsMobile Phones and Terminals, Mobile Systems, and Infocom Systemsa move that signaled the firms commitment to its mobile phone business.

Success continued in 1997 as the company focused efforts on expanding its research in third-generation mobile telephone systems and Wideband Code Division Multiple Access (WCDMA). WCDMA was defined by Ericsson in its 2000 annual report as a technology for wideband digital radio communications of Internet, multimedia, video, and other capacity-demanding applications. This technology, developed by Ericsson and other telecommunication firms, was selected for the third generation of mobile phone systems in Europe, Japan, Korea, and the United States. The company also continued to work with Intel Corp., IBM Corp., Toshiba Corp., and Nokia Ltd. on the Bluetooth system, a new technology based on radio signals that eliminate the need for wires when transmitting signals between phones, computers, and other devices.

Restructuring in the Late 1990s and Beyond

Sven-Christer Nilsson was elected president and CEO in 1998 while Lars Ramqvist succeeded Svedberg as chairman. Under the direction of Nilsson, Ericsson reorganized business operations again, forming three new business segments. Network Operators included the firms wireless and fixed solution for data and telecommunications and those operations that had fallen under the previous Mobile Systems division as well as the Infocom Systems; the Consumer Products segment included the firms mobile phone operations; and Enterprise Solutions offered solutions for business communications. As part of the restructuring, Nilsson also planned to cut 11,000 jobs over the next two years.

Along with reorganizing, Ericsson made several key acquisitions. In 1998, the firm purchased U.S.-based Advanced Computer Communications Inc., a leading routing and remote access technology firm. The following year, Torrent Network Technologies Inc. and Touch Wave Inc.both U.S. firmswere purchased. During 1999, Ericsson also settled a two-year patent dispute concerning Wireless Code Division Multiple Access (CDMA) technology with Qualcomm Inc. As part of the settlement, Ericsson acquired Qualcomms wireless infrastructure business.

At the same time, however, Ericssons financial success of the past was dwindling. Despite its efforts, its share of the mobile handset market was faltering, due in part to fierce competition by market leader Nokia. From 1998 to 1999, Ericssons share fell from 15.1 percent of the market to just 10.5 percent. Its share of the mobile infrastructure market however, remained strong with more than a 30 percent share. By the end of the decade, 70 percent of Ericssons revenues stemmed from infrastructure sales, while 21 percent came from the sale of handsets.

Nilssons stint as Ericssons president and CEO was shortlived. In July 1999, he was forced to resign when his restructuring efforts were deemed ineffective. Ramqvist eventually took over as chairman and Kurt Hellström, the executive vice-president of the firms Asia operations, was named president and CEO.

During 2000, Ericsson continued its $1 billion restructuring effort. Several strategic moves were put in place to return the company to profitability across all of its business segments. It entered the Internet Protocol (IP) telephony market with the launch of its WebSwitch 2000 product line targeted at the U.S. businesses. It also divested several non-core businesses including its interest in Jupiter Networks. While Ericsson faced many obstacles in 2000including increased competition, slowing economies, and the weakening of the Swedish Krona against the U.S. dollarit was able to increase sales and net income. Ericsson shares, however, lost value for the first time in 10 years.

The firms faltering Consumer Products division reported a loss in 2000 of SKr 24 billion due in part to a factory fire and quality issues. The company claimed that during 2000, only one out of ten handsets bore the Ericsson name, while four out of ten mobile telephone calls traveled over an Ericsson network. As such, Ericsson announced in 2001 that it would outsource production of its mobile phones to Flextronics International Ltd., cutting its Consumer Products division workforce from 18,000 in 2000 to just 7,000 in 2001. It also announced plans to form a joint venture with Sony. The deal created Sony Ericsson Mobile Communications, a company that would include both firms mobile phone businesses. As the firm continued to shift its major focus from mobile handsets to wireless infrastructure, Ericsson also began a new advertising campaign sloganEricsson can grow your businessin hopes of gaining recognition in the increasingly competitive telecommunications industry.

While Ericssons financial results remained lackluster, management concluded that it would overcome its obstacles. In its October 2001 third quarter report, Hellström boasted that in these challenging times, our customers rely more that ever on our ability to deliver better solutions faster. With our dedicated people, strong cash position, premier customer base, and technological lead, I am confident that we will deliver on our customers expectations better than any competitor. Whether or not the company would quickly return to profitable during the years to come however, remained to be seen.

Principal Subsidiaries

Ericsson Utvecklings AB; Ericsson Enterprise AB; Ericsson Microwave Systems AB; Ericsson Radio Systems AB; Ericsson Telecom AB; Ericsson Gamsta AB; Ericsson Mobile Communications AB; Ericsson Radio Access AB; Ericsson Software Technology AB; SRA Communication AB; LM Ericsson Holding AB; Ericsson Austria AG; Ericsson France S.A.; Ericsson GmbH (Germany); Ericsson S.p.A. (Italy; 72%); Ericsson AG (Switzerland); Teleindustria Ericsson S.A. (Mexico); Ericsson Company Ltd. (China); Ericsson Communication Private Ltd. (India); Ericsson Taiwan Ltd.; Ericsson Cables AB; Ericsson Inc. (United States); Nippon Ericsson K.K. (Japan; 90%); Ericsson Australia Pty. Ltd.

Principal Divisions

Network Operators; Consumer Products; Enterprise Solutions.

Principal Competitors

Nokia Corporation; Motorola, Inc.; Siemens AG.

Further Reading

Attman, Artur, Jan Kuuse, and Ulf Olsson, LM Ericsson 100 Years, 2 vols., Stockholm: Telefonaktiebolaget LM Ericsson, 1976.

Darby, Ian, Ericsson Starts Global Telecoms Push, Campaign, October 26, 2001, p. 8.

Ericsson: A Tale of Two Fronts, Wireless Insider, April 23, 2001.

Ericsson Agreed to Acquire Remaining 49% of Ericsson Raynet, Communications Daily, January 18, 1996, p. 7.

Ericsson Aims to Be More Resilient, New Straits Times, November 13,2001.

Ericsson and Sony Agree to Mobile Merger, Electronics Weekly, September 5, 2001, p. 10.

Ericsson Appoints New CEO, EDGE, on & about AT&T, February 2, 1998.

Ericssons New Organization, EDGE, on & about AT&T, October 5, 1998.

Evers, Joris, Ericsson Restructures Business and Hires COO, Network World, August 17, 2001.

Harbert, Tim, A Tale of Two Mobile Phone Telephone Makers, Electronic Business, May 2000, p. 88.

Meyers, Jason, Here, There, and Everywhere, Telephony, October 21, 1996, p. 42.

Reed, Stanley, In Need of a Recharge, Business Week, May 7, 2001.

Reed, Stanley, Q&A with Ericsson CEO Hellstrom, Business Week, May 7, 2001.

Resignation: Ericsson Chief Ousted in Face of Financial Crunch, InfoWorld, July 12, 1999.

Shaplen, Robert, Kreuger: Genius & Swindler, New York: Alfred A. Knopf, 1960.

Thompson, Robert, Bluetooth Bites Into Wireless Marketplace, Computer Dealer News, June 22, 1998, p. 1.

Douglas Sun
update: Christina M. Stansell

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Telefonaktiebolaget LM Ericsson

Telefonaktiebolaget LM Ericsson

S-126 25 Stockholm
Sweden
(08) 719 00 00
Fax: (08) 18 40 85

Public Company
Incorporated: 1918 as Allmänna Telefonaktiebolaget L.M. Ericsson
Employees: 70,238
Sales: SKr45.70 billion (US$8.25 billion)
Stock Exchanges: Stockholm NASDAQ Basel Düsseldorf Frankfurt Geneva Hamburg London Oslo Paris Zürich

Telefonaktiebolaget LM Ericsson (LME) is one of the worlds largest telecommunications concerns. The core of its operations has almost always been the manufacture of telephones, cables, and switching equipment. During World War II LME also began manufacturing products for the Swedish military, and it later continued to produce radar equipment.

The company bears the name of Lars Magnus Ericsson, an engineer who founded a workshop to repair telegraph machines in Stockholm in 1876. At first, Ericsson only worked with telegraph equipment, but that changed in 1877 when the newly invented telephone reached Sweden. LM Ericsson began producing telephones the next year, but sales were disappointing because the American Telephone and Telegraph Company (AT&T) had a virtual monopoly on telephone service in Sweden and used its own equipment. AT&Ts Bell subsidiaries faced no serious competition in Sweden until 1883, when engineer Henrik Tore Cedergren founded Stock-holms Allmänna Telefonaktiebolag (SAT) to provide telephone service and purchased his equipment from LM Ericsson.

Another boost to LM Ericssons fortunes appeared in the 1880s in the form of an expanding export market. In 1881 the companys international business was very small and limited to other Nordic countries. By the end of the decade, however, its telephones were appearing in western Europe, Great Britain, and Russia. If LM Ericssons export business expanded in the 1880s, it exploded in the 1890s. The company began selling telephones in Australia and New Zealand. Late in the decade it sold telephone exchanges that switch calls, as well as telephones in South Africa. During the Boer War, LM Ericsson supplied field telephones to the British armed forces. In 1899 LM Ericsson opened its first foreign factory, in St. Petersburg, Russia; and by the turn of the century it had begun selling telephones in China and the South Pacific.

In 1900 exports accounted for about 90% of LM Ericssons total sales. Contraction of demand in the domestic market and rapidly expanding foreign markets were partly responsible for this dominance of exports. Telegrafverket, the state-run telephone company, and SAT had been Ericssons principal customers in Sweden, but both decided to set up their own manufacturing subsidiaries. Telegrafverket did so in 1891 and SAT in 1896. Nonetheless, LMEs annual sales went from SKr500,000 in 1890 to SKr4 million in 1900.

Ericsson incorporated in 1896 as Aktiebolaget LM Ericsson & Company, with Ericsson serving as chairman, president, and sole shareholder. He retired as president in 1900 and was succeeded by Axel Boström, his former office manager. Ericsson stepped down as chairman the next year and died in 1926.

Even without the guiding hand of its founder, Ericsson continued to conquer international markets in the years leading up to World War I. It began selling equipment in Egypt and set up manufacturing subsidiaries in Great Britain, the United States, France, and Austria-Hungary. It also began installing telephone exchanges, joining with SAT to set up a network in Mexico in 1905. Relations with SAT, all but severed in 1896 when it began manufacturing its own equipment, were repaired in 1901 after SAT acquired telephone concessions in Moscow and Warsaw. Realizing that his production capacity was inadequate to supply these new markets, Henrik Cedergren agreed to merge his manufacturing operations with Ericssons. SAT sold its subsidiary, AB Telefonfabriken, to Ericsson in exchange for LME stock.

Ericsson suffered during World War I as hostilities cut off most of its foreign markets. Exports were limited to Russia and neutral countries. The Russian market dissolved in 1918 when the new Bolshevik government nationalized Ericssons Soviet operations, seizing about SKr20 million worth of assets. Despite these setbacks, the companys sales continued to rise, from about SKr9 million in 1913 to SKrl4 million in 1920.

The most important event of the World War I years was Ericssons merger with SAT in 1918. The two companies had been allied for decades, with a short separation after the establishment of AB Telefonfabriken. The companies decided to pool their assets in the uncertain war years. The new entity was called Allmänna Telefonaktiebolaget L.M. Ericsson. Ar-vid Lindman of Ericsson was appointed chairman, with Hemming Johansson of Ericsson and Gottlieb Piltz of SAT serving as co-presidents.

In 1921 an attempt to hammer out a worldwide telephone cartel agreement between Allmänna Telefonaktiebolaget L.M. Ericsson, AT&Ts Western Electric subsidiary, and a German engineering firm, Siemens & Halske, fell through, and the three giants of the telephone business spent the rest of the decade battling with each other along with a U.S. firm, International Telephone and Telegraph Corporation (ITT), in the worlds markets. In 1926 the company dropped Allmänna (general) from its name and became known by its present name. LME had become one of the most important players in its chosen arena, but by 1930 the company would find its survival in doubt as it was caught in the machinations of Ivar Kreuger, the notorious Swedish financier and confidence man. Kreuger rose to prominence in the 1920s, trying to forge an international monopoly in the production and sale of matches. He acquired the necessary financing, however, through fraud; he lied about the extent of his assets and the profitability of his previous ventures to gain credit. For years his deceits went undetected, and his empire grew. In the late 1920s he began to diversify, and he purchased LME stock in 1926 and 1927. By 1930 Kreuger controlled LME. Kreugers takeover had little effect on LMEs operations, but the companys assets became another token in his pyramid financing scheme.

By 1931 the Great Depression had made it all but impossible to raise capital through the securities markets, so Kreuger was forced to take desperate measures to meet his debt obligations and keep his gossamer empire from disintegrating. In one last effort, he approached ITT chairman Sos-thenes Behn and proposed to sell his LME stock to ITT. He would sell ITT a controlling interest in LME for US$11 million, which he needed to make interest payments on his own bonds. Early in 1932, however, ITT backed out of the deal as doubts about Kreugers solvency began to emerge. ITT demanded its money back, but Kreuger had already spent it. Kreuger killed himself in March 1932.

After Kreugers death, an independent audit revealed that he had also embezzled US$5 million in cash from LME by replacing the money with illiquid French telephone bonds. His looting had bankrupted the company, and furthermore, he had delivered it into the hands of ITT, one of LMEs major foreign competitors. Swedens three major banksSkandinaviska Kredit, Stockholms Enskilda Bank, and Svenska Handelsbanken moved quickly to restore LMEs liquidity and restructure the company. They also negotiated with ITT over its share of LME, a process made delicate by the fact that Swedish law forbade foreign interests from exercising a voting majority in Swedish companies. Under agreements reached later that year, ITT was allowed a large, but not a majority, share of re-issued LME stock, and Behn was given a directorship. The new LME board met for the first time in May 1933, with former National Power Administration official Waldemar Borgquist as chairman. Marcus Wallenberg Jr. of Stockholms Enskilda Bank was also appointed to head a special committee overseeing LMEs finances. This marked the beginning of Wallenbergs long association with the companyhe became chairman in 1953and effectively added LME to the Wallenberg family business empire.

The so-called Kreuger crash made the Depression doubly hard for LME. Abroad, the company secured its market share by entering into cartel agreements with its competitors. At home, it cut back its work force and did not pay a dividend from 1932 until 1936. The outbreak of World War II did not make things any easier. The German invasion of Poland eliminated a foreign market that had been an important source of revenue, and LME once again omitted its dividend in 1939. The company lost about a third of its export sales during the war as well as foreign assets that were destroyed or nationalized. On the other hand, LME did benefit from Swedens military buildup and manufacturing of telephones, aircraft instruments, machine-guns, and ammunition for the military.

Only after World War II ended was LME able to put the troubles of the 1930s behind it. Once again, LME concentrated on its core telephone manufacturing business, and export markets played their traditional leading roles. During the war, domestic orders had accounted for a peak 80% of all sales, but this began to decrease steadily in 1946. By 1973 the ratio would be reversed; exports would account for about 75% of LMEs sales, just as they had during the early 1920s. Despite the nationalization of its Mexican subsidiary in 1958, sales in Latin America and Australia boomed in the 1950s. Profits grew, and the company expanded steadily throughout the postwar years.

In 1951 LME expanded its manufacturing capacity in the United States by acquiring a majority interest in North Electric Company of Ohio for $1.7 million. In the early 1960s, however, North Electrics orders from General Telephone Corporation and the U.S. Air Force fell off sharply and the company began to lose money. In 1966 LME sold a 52% interest in the subsidiary to United Utilities, a telephone and utilities concern that had become North Electrics main customer. LME sold its remaining interest to United Utilities in 1968.

In 1960 LME finally rid itself of Ivar Kreugers legacy. After several years of negotiation, Marcus Wallenberg, Jr., purchased an option on ITTs entire stake in the company, which consisted of almost 1.1 million shares of preferred and common stock worth a total of $22.7 million. All of the common shares were subsequently sold through underwriting syndicates, and 200,000 of the preferred shares were sold on the open market, with the remaining 438,000 divided between Providentia, a Swedish trust company, Svenska Handelsbanken, Skandinaviska Enskilda Banken, and LME itself.

LME pared back its nontelephone business in the 1960s. In 1963 it sold off ERMEX AB, a subsidiary that produced electric cattle fences and locks. In 1968 it divested its electricity-meter operations when it sold another subsidiary, Ericsson Mätinstrument, to the Swiss engineering concern Landis & Gyr. At the same time, it savored its reputation as the worlds premier non-U. S. telecommunications company. The crossbar switching system, which it had pioneered in the early 1950s, formed the basis of telephone networks in many countries. In 1973 LME attempted to expand its share of the British market by entering into a joint venture with electrical manufacturer Thorn Electrical Industries to produce telephone exchanges.

LME fell behind competitors like ITT, GTE, and Siemens in technological development in the late 1960s and early 1970s. That changed in 1976, however, when LME introduced its AXE switching system. The AXE was the first fully digital switching system, converting speech into the binary language used by computers. Its competitors still used the slower and less-reliable analog system, in which electric currents conveyed the vibrations of the human voice. The AXEs modular software and hardware gave it another edge over its rivals, making it easier to manufacture and test and easier for customers to repair and modernize. The system was an immediate success, winning virtually every major international telecommunications contract for two years after its introduction. Björn Svedberg, the young engineer who led the AXE development team, was appointed president of the company in 1978.

In 1980 LME purchased a controlling interest in Datasaab, a struggling computer manufacturer that had been jointly owned by Saab-Scania and the Swedish government. LME used this acquisition as the starting point of a major effort to enter the U.S. office automation market. LME also modified its powerful MD-110 PBX switch, a central-office switch, to suit the needs of U.S. customers, and in 1983 it entered into a joint venture with Honeywell to market the MD-110 in the United States and to develop other telecommunications products. Previously a bit player in the United States, LME realized that it needed to play a major role there to ensure its prosperity.

In 1985, however, LME discontinued the sale of personal computers in the United States after selling only 3,000 units, or one-fifth of its goal for the year, and technical problems with the MD-110 suggested that it had been brought to market too quickly. LME laid off 500 employeesone-quarter of its work forcefrom its money-losing U.S. operations.

At the same time, however, the AXE system continued to prove a tremendous success; in 1985 LME won its first AXE contract from British Telecom, worth US$140 million. Also in 1987, LME gained 16% of the French telephone-switching market when the French government accepted its bid for Compagnie Générale Constructions Téléphoniques, an ailing switch-maker. This coup was especially prestigious because LME bested its two largest international competitors, AT&T and Siemens.

Faced with the vitality of its core switching business and the relative torpor in its data-processing business, LME decided to divest the latter and refocus on the former in 1988, abandoning its vision of producing its own automated office system. It sold its computer and terminal operations to Nokia Corporation, a Finnish concern, for US$217 million. With this sale, LME prospered. It laid the groundwork for future profits by winning contracts for switching equipment from the U.S. regional Bell companies that were formed when AT&T was broken up. LME also benefited from a surge in the demand for cellular phone service, and the quality of its products enabled LME to capture 40% of the worlds cellular systems market. The companys position solidified in 1989 when an LME-backed design for digital mobile radio transmission was selected over entries from AT&T and Motorola as the U.S. standard by the Cellular Telecommunications Industry Association.

In 1988 LME amassed gross profits of SKrl.2 billion, a 60% increase over the previous year. Profits continued to grow throughout the end of the decade, and the company continued to expand its position in overseas markets. In 1990 telecommunications giant Nippon Telephone and Telegraph chose LME, Motorola, and AT&T to be its partners in a plan to jointly develop a digital mobile telephone system. The move was expected to give LME valuable access to Japans burgeoning mobile phone market. In 1991 the company strengthened its position in Europes cellular phone market when it acquired 50% of Orbitel Mobile Communications, the manufacturing subsidiary of British concern Racal Telecom PLC.

LME has risen a long way from the nadir of the Kreuger crash. As a large corporation with a small domestic market, it has almost always relied heavily on export markets for most of its revenues. Despite its size disadvantage relative to international competitors, LME made it back to the top of the telecommunications industry. With its renewed focus on its core businesses giving it strength, it seems poised to remain at the top.

Principal Subsidiaries

ELLEMTEL Utvecklings AB (50%); Ericsson Business Communications AB; Ericsson Cables AB; Ericsson Components AB; Ericsson Radar Electronics AB; Ericsson Radio Systems AB; Ericsson Network Engineering AB; Ericsson Telecom AB; Radiosystem Sweden AB; Ericsson Treasury Services (Ireland); Ericsson Treasury Ireland Ltd.; LM Ericsson Holdings Ltd. (Ireland); Ericsson SETE-MER S.p.A. (Italy, 71%); Ericsson Holding International B.V. (Netherlands); Swedish Ericsson Company Ltd. (U.K.); Ericsson Eurolab Deutschland GmbH (Germany); Ericsson Communications Inc. (Canada); Ericsson North America Inc. (U.S.A.); Ericsson GE Mobile Communications Holding Inc. (U.S.A., 60%); Cia Argentina de Telefonos S.A. (78%); Cia Ericsson S.A.C.I. (Argentina); Fios e Cabos Plásticos do Brasil S.A. (Brazil, 21%); Ericsson de Colombia S.A. (92%); Teleindustria Ericsson S.A. (Mexico, 72%); Cia Anonima Ericsson (Venezuela).

Further Reading

Shaplen, Robert, Kreuger: Genius & Swindler, New York, Alfred A. Knopf, 1960; Attman, Artur, Jan Kuuse, and Ulf Olsson, LM Ericsson 100 Years, 2 vols., Stockholm, Telefonaktiebolaget LM Ericsson, 1976.

Douglas Sun

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