Everything about Ericsson totally explained
Ericsson (
Telefonaktiebolaget L. M. Ericsson) () is a leading
Swedish-based provider of telecommunication and data communication systems, and related services covering a range of technologies, including mobile phones. Founded in 1876 as a
telegraph equipment repair shop by
Lars Magnus Ericsson, it was incorporated on
August 18,
1918. Headquartered in
Kista,
Stockholm Municipality, since 2003, LM Ericsson is considered part of the so-called "
Wireless Valley". Since the mid 1990s, Ericsson's extensive presence in
Stockholm helped transform the capital into one of Europe's hubs of
information technology (IT) research.
In the early 20th century, Ericsson dominated the world market for manual
telephone exchanges but was late to introduce automatic equipment. The world's largest ever manual telephone exchange, serving 60,000 lines, was installed by Ericsson in
Moscow in 1916. Throughout the 1990s, Ericsson held a 35-40% market share of installed
cellular telephone systems. Like most of the telecommunications industry, LM Ericsson suffered heavy losses after the telecommunications crash in the early 2000s, and had to retrench tens of thousands of staff worldwide in an attempt to staunch the losses.
The handsets division got a fresh start in 2001 in the form of a
joint venture with
Sony called
Sony Ericsson. LM Ericsson is a major provider of handsets and an infrastructure supplier for all major wireless technologies. It has played an important global role in modernizing existing
copper lines to offer
broadband services and has actively grown a new line of business in the professional services area.
On 18 February 2008, it was announced that
Aastra Technologies would acquire the enterprise PBX division of Ericsson.
This move has caused considerable consternation among Ericsson's partner companies.
History
19th century: the beginning
Lars Magnus Ericsson began his association with telephones in his youth as an instrument maker. He worked for a firm which made
telegraph equipment for Swedish firm
Telegrafverket. In 1876, aged 30, he started a telegraph repair shop with help from his friend Carl Johan Andersson. The shop was in central
Stockholm (Drottninggatan 15) and repaired foreign-made telephones. In 1878 Ericsson began making and selling his own
telephone equipment. His phones were not technically innovative, as most of the inventions had already been made in the US. In 1878, he made an agreement to supply telephones and switchboards to Sweden's first telecom operating company, Stockholms Allmänna Telefonaktiebolag.
Also in 1878, local telephone importer Numa Peterson hired Ericsson to adjust some telephones from the
Bell company. This inspired him to buy a number of
Siemens telephones and analyze the technology further. (Ericsson had had a scholarship at Siemens a few years earlier.) Through his firm's repair work for Telegrafverket and
Swedish Railways, he was familiar with Bell and Siemens Halske telephones. He improved these designs to produce a higher quality instrument. These were used by new telephone companies, such as
Rikstelefon, to provide cheaper service than the Bell Group. He had no
patent or
royalty problems, as Bell hadn't patented their inventions in
Scandinavia. His training as an instrument maker was reflected in the high standard of finish and the ornate design which made Ericsson phones of this period so attractive to collectors. At the end of the year he started to manufacture telephones of his own, much in the image of the Siemens telephones, and the first product was finished in 1879.
With its reputation established, Ericsson became a major supplier of telephone equipment to Scandinavia. Because its factory couldn't keep up with demand, work such as joinery and metal-plating was contracted out. Much of its raw materials were imported, so in the following decades Ericsson bought into a number of firms to ensure supplies of essentials like
brass,
wire,
ebonite and
magnet steel. Much of the
walnut used for cabinets was imported from the US.
As Stockholm's telephone network expanded rapidly that year, the company reformed into a telephone manufacturing company. But when Bell bought the biggest telephone network in Stockholm, it only allowed its own telephones to be used with it. So Ericsson's equipment sold mainly to free telephone associations in the Swedish countryside and in the other
Nordic countries.
The high prices of Bell equipment and services led
Henrik Tore Cedergren to form an independent telephone company in 1883 called
Stockholms Allmänna Telefonaktiebolag. As Bell wouldn't deliver equipment to competitors, he formed a pact with Ericsson, which was to supply the equipment for his new telephone network. In 1918 the companies were merged into
Allmänna Telefonaktiebolaget LM Ericsson.
In 1884, a multiple-
switchboard manual
telephone exchange was more or less copied from a design by C. E. Scribner at
Western Electric. This was legal, as the device wasn't patented in Sweden, although in the US it held patent 529421 since 1879. A single switchboard could handle up to 10,000 lines. The following year, LM Ericsson and Cedergren toured the US, visiting several telephone exchange stations to gather "inspiration". They found that US engineers were well ahead in switchboard design but Ericsson telephones were as good as any available.
In 1884, a technician named Anton Avén at Stockholms Allänna Telefonaktiebolag had combined the earpiece and the mouthpiece of a (by then) standard telephone into a handset. It was used by operators in the exchanges that needed to have one hand free when talking to their customers. Ericsson picked up this invention and incorporated it into Ericsson products, beginning with a telephone named
The Dachshund.
As production grew in the late 1890s, and the Swedish market seemed to be reaching saturation, Ericsson was able to expand into foreign markets through a number of agents.
Britain and
Russia were early markets. This eventually led to the establishment of factories in these countries. This was partly to improve chances of gaining local contracts, and partly because the Swedish factory couldn't keep up supply. In Britain, the
National Telephone Company had been supplied with Ericsson equipment for some time and was a major customer. By 1897, Britain was accounting for 28% of Ericsson's sales. Other Nordic countries had become Ericsson customers as well, spurred by the rapid growth of telephone services in Sweden.
Other countries and colonies were exposed to Ericsson products through the influence of their parent countries. These included
Australia and
New Zealand, which by the late 1890s were Ericssons's largest non-European market. With
mass production techniques now firmly established, the phones were losing some of their ornate finish and decoration.
Despite their successes elsewhere, Ericsson never made significant sales into the United States. The Bell Group and local companies like
Kellogg and
Automatic Electric had this market tied up. Ericssons eventually sold its US assets. In contrast, sales in
Mexico were good and led to further development into
South American countries.
South Africa and
China were also generating significant sales. With his company now
multinational, and growing strongly, Lars Ericsson stepped down from the company in 1901.
20th century: share ownership
In a curious oversight, Ericsson ignored the growth of
automatic telephony in the US. Instead it concentrated on squeezing the most sales out of manual exchange designs. By 1910, this weakness was becoming seriously apparent, and the company spent the years up to 1920 correcting the situation. Their first dial phone was produced in 1921, although sales of the early automatic switching systems were slow until the equipment had proved itself on the world's markets. Phones of this period were characterised by a simpler design and finish, and many of the early automatic desk phones in Ericsson's catalogues were simply the proven magneto styles with a dial stuck on the front and appropriate changes to the electronics. A concession to style was in the elaborate decals (transfers) that decorated the cases. These phones have been also highly collectable and attractive.
World War I, the subsequent
Great Depression, and the loss of its Russian assets after the
Revolution slowed the company's development and restricted its sales to countries such as Australia.
The purchase of other related companies put pressure on Ericsson's finances, and in 1925,
Karl Fredric Wincrantz took control of the company by acquiring the majority of the shares. Wincrantz was partly funded by
Ivar Kreuger, an international
financier. The company was renamed
Telefon AB LM Ericsson. At this time, Kreuger started showing interest in the company, being a major owner of Wincrantz holding companies.
In 1928, Ericsson began its long tradition of "A" and "B" shares, where an "A" share has 1000 votes against a "B" share. Wincrantz controlled the company by having only a few "A" shares, not a majority of the shares. By issuing a lot of "B" shares, much more money was fed to the company, while maintaining the
status quo of power distribution.
In 1930, a second issue of "B"-shares took place, and Kreuger gained majority control of the company with a mixture of "A" and "B" shares. He bought these shares with money lent by LM Ericsson, with
security given in German state
bonds. He then took a large loan for his own company
Kreuger & Toll from
ITT Corporation (administered by
Sosthenes Behn), giving large parts of LM Ericsson as security, and used its assets and name in a series of doubtful international financial dealings that had little to do with
telephony.
Financially weakened, Ericsson was now being seen as a take over target by ITT, its main international competitor. In 1931 ITT acquired from Kreuger enough shares to have a majority interest in Ericsson. This news wasn't made public for some time. There was a government imposed limit on foreign
shareholdings in Swedish companies, so for the time being the shares were still listed in Kreuger's name. Kreuger in return was to gain shares in ITT. He stood to make a profit of $11 million on the deal. When ITT's Behn wanted to cancel this deal in 1932, he discovered that there was no money left in the company, just a large claim on the same Kreuger & Toll that Kreuger had himself lent money to. Kreuger had effectively bought LM Ericsson with its own money.
With Kreuger no longer in control, the company's shaky financial position became quickly evident. Kreuger had been using the company as security for loans, and despite his profits, was unable to repay these loans. Ericsson found that they'd invested in some very doubtful share deals, whose the probable losses were significant. ITT examined the deal and found that it had been mislead quite seriously about the Ericsson's value. It summoned Kreuger to
New York City for a conference, but Kreuger had a "breakdown". As word of Kreuger's financial position spread, pressure was put on him by the banking institutions to provide security for his loans. ITT cancelled the deal to buy Ericsson shares. Kreuger couldn't repay the $11 million, and committed suicide in
Paris in 1932. ITT owned one third of Ericsson, but was forbidden to exercise this ownership because of a paragraph in the articles of association stating that no foreign investor was allowed to control more than 20% of the votes.
Ericsson, a basically stable and profitable company, was only saved from bankruptcy and closure with help of loyal banks and some government backing.
Marcus Wallenberg Jr negotiated a deal with several Swedish banks to rebuild Ericsson financially. Some of those were
Stockholms Enskilda Bank (after a later merger part of the present
Skandinaviska Enskilda Banken) and other Swedish investment banks controlled by the Wallenberg family. Then gradually increased their possession of LM Ericsson "A" shares, with ITT still being the single largest owner. In 1960 the Wallenberg family struck a deal with ITT to buy its shares in Ericsson, and has since controlled the company, under the "Wallenberg sphere".
In the 1920s and 1930s, the world telephone markets were being organised and stabilized by many governments. The fragmented town-by-town systems which had grown up over the years, serviced by many small private companies, were integrated and offered for lease to a single company. Ericsson managed to obtain some leases, which was vital to the company as it represented further sales of equipment to the growing networks. The other large telephone companies, of course, had exactly the same goal. Ericsson managed to get almost one third of its sales under the control of its
telephone operating companies.
There were a number of negotiations between the major telephone companies aimed at dividing up the world between them, but the sheer size of the ITT empire made it hard to compete with. With its financial problems, Ericsson was forced to reduce its involvement in telephone operating companies and go back to what it did best, manufacturing
telephones and
switchgear. It could do this easily now, thanks to its overseas manufacturing facilities and its associated supply companies. These hadn't been involved in the previous shady financial dealings and were generally in a sound position. The
Beeston factory in Britain became a very useful asset here. It had been a joint venture between Ericsson and the National Telephone Company. The factory built automatic switching equipment for the BPO under license from Strowger, and exported a large amount of product to former colonies like South Africa and Australia. The British government divided its equipment contracts between competing manufacturers, but Ericsson's presence and manufacturing facilities in Britain allowed it to get most of the contracts. Ericsson equipment maintained its reputation for quality.
Sales drives resumed after the Great Depression, but the company never achieved the market penetration that it had at the turn of the century. Although it still produced a full range of phones, switching equipment was becoming a more important part of its range. The distinctive Ericsson styles soon became subdued by the increasing use of moulded
thermoplastic phones (
Bakelite, etc).
Yet, Ericsson remained a world telecommunications leader. It released one of the world's first handsfree speaker phones in the 1960s. In 1956, it released the
Ericofon, which was such a radical departure in styling that it has been highly collectable. Ericcson
crossbar switching equipment is the mainstay of many telephone administrations around the world, and its influence is still felt strongly in such areas as
mobile phones with its reputation for quality.
21st century: acquisitions, expansion, consolidation and cooperation
As the
Internet and
wireless telephony began to merge during the turn of the century,
Motorola (US), Ericsson, and
Nokia (Finland) announced plans to develop standards jointly for the security of electronic transactions over mobile devices in 2000. In May 2000 the
European Commission created the
Wireless Strategic Initiative, a consortium of four leading telecommunications suppliers in Europe — Ericsson, Nokia, France-based
Alcatel, and German
Siemens AG — to develop and test new prototypes for advanced wireless communications systems. After meeting with an international think tank, the consortium partners in December 2000 invited other companies to join them in a
Wireless World Research Forum held in 2001.
In 2000, the
bursting of the information technology bubble had marked
economic implications for Sweden. Ericsson, the world's largest producer of mobile telecommunications equipment, shed thousands of jobs, as did the country's once fast-expanding Internet consulting firms and
dot-com start-ups. In 2000,
Intel Corp., the world's largest chip manufacturer, signed a $1.5 billion deal to supply
flash memory to LM Ericsson over the next three years.
In 2001 around the world experienced a year of tumbling stock prices and huge job losses. By September the stock market valuation of the world's telecom carriers and suppliers had declined by $3.8 trillion from a peak of $6.3 trillion in March 2000. More than a quarter of a million jobs were lost globally in the second quarter of 2001 alone. The major equipment manufacturers —
Motorola (US),
Lucent Technologies (US), and
Cisco Systems (US),
Marconi (UK),
Siemens AG (Germany),
Nokia (Finland), as well as Ericsson — all announced job cuts both in their home countries and in subsidiaries around the world. Some of the biggest losses were announced by the Canadian supplier
Nortel Networks Ltd., which shed 50% of its workforce (almost 50,000 jobs). In France equipment manufacturer Alcatel cut 33,000 jobs (almost a third of its employees).
In April 2001, Ericsson and
Sony Corp of
Japan announced that they were setting up a
joint venture, based in
London, to combine their cellular handset manufacturing businesses.
Financially, 2002 was even worse for the global Internet and telecommunications industry than the previous year had been due the excesses of the investment bubbles. LM Ericsson,
Royal KPN NV,
Vodafone Group PLC, and
Deutsche Telekom AG experienced the biggest losses in corporate history. The telecommunications sector's problems brought bankruptcies, criminal investigations, and job losses and led to changes in the leadership of a number of major companies. The most high-profile victim in 2002 was Ericsson, then the world's largest producer of wireless telecom systems, as it was forced to let go thousands of staff and raise about $3 billion from its
shareholders.
In June 2002,
Infineon Technologies AG (then the sixth largest
semiconductor supplier and a subsidiary of
Siemens AG) bought the
microelectronics unit of LM Ericsson for
€400 million.
In October 2005, LM Ericsson acquired the bulk of the troubled British telecoms manufacturer
Marconi, including the Marconi brand name, which dates back to the creation of the original
Marconi Company by the "father of radio"
Guglielmo Marconi. In September 2006, LM Ericsson sold the greater part of its
defense business
Ericsson Microwave Systems, which mainly produced sensor and radar systems, to
SAAB AB, which renamed the company to
Saab Microwave Systems. The sale meant that
Saab Ericsson Space, previously a joint venture, is now fully owned by SAAB. Not included in the sale to Saab was the National Security & Public Safety division, which was transfered to Ericsson West with the sale. In November 2006, LM Ericsson purchased the
UIQ software business for
smartphones from
Symbian.
In January 2007, LM Ericsson completed the merger of its indirect wholly owned subsidiary,
Maxwell Acquisition Corporation, with and into
Redback Networks Inc. (Redback), with Redback surviving the merger as a wholly owned subsidiary of LM Ericsson. In February 2007, LM Ericsson acquired
Entrisphere, a company providing fiber access technology, based in the United States. In September 2007, LM Ericsson acquired an 84% interest in German software firm,
LHS Inc.
Major competitors today include
Alcatel-Lucent,
Nortel,
Huawei,
Nokia Siemens,
Cisco,
IBM,
EDS,
Accenture,
Nokia,
Motorola,
Samsung,
LG Electronics,
NEC,
Sharp and most recently
Apple Inc. (For more details, see the last template at the end of the page.)
Corporate governance
Current members of the
board of directors of LM Ericsson are: Monica Bergström,
Peter Bonfield, Kristina Davidsson, Börje Ekholm, Anna Guldstrand, Jan Hedlund, Katherine Hudson,
Ulf Johansson, Per Lindh, Sverker Martin-Löf,
Nancy McKinstry, Torbjörn Nyman, Anders Nyrén,
Carl-Henric Svanberg,
Michael Treschow and
Marcus Wallenberg. Since the launch of
.mobi in September 2006, Ericsson has launched
Ericsson.mobi
, its mobile portal, and
SonyEricsson.mobi, the mobile portal of
Sony Ericsson. Additionally, Ericsson hosts a mobile developer program called
Ericsson Mobility World, designed to encourage fast development of mobile internet applications and services.
Further Information
Get more info on 'Ericsson'.
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