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Ericsson: Networks Remain Key to Growth
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Ericsson may not be as well known to average consumers as rivals such as Motorola or Nokia, but the Swedish giant has long been the leading firm in the telecom equipment market, a more lucrative sector than mobile phones.

Boosting Ericsson's share of an increasingly consolidated market may not be an easy task for Chief Executive Officer Carl-Henric Svanberg. In the past months, the industry has seen Lucent merge with Alcatel and Nokia and Siemens combine its network businesses, partly triggered by Ericsson's decision to acquire Britain's Marconi last year. Such mergers could put the heat on Ericsson.

However, Svanberg, in an interview with China Daily, said he is confident that Ericsson will continue to hold onto its leading position in the telecom equipment market, as well as the top spot in China, which has been coveted by rivals such as Alcatel, Nokia and Siemens.

That's because Ericsson, since spinning off its handset business to form a joint venture with Sony, has been focusing on the telecom equipment market and investing more than any of its rivals in related technologies and research and development (R&D), Svanberg explained.

And as Alcatel, Lucent, Nokia and Siemens are busy integrating their businesses, that might open a door for Ericsson to grab new business opportunities and expand its market share.

Svanberg said the network business will remain the key to Ericsson's future growth. But the firm is also pinning its hopes on professional services and the multimedia business, which are fuelling Ericsson's business growth.

Ericsson is now the world's largest provider of professional telecom services, such as network design, planning, optimization, software development and managed services where mobile telecom equipment manufacturers take over and run networks for operators.

In the third quarter of this year, Ericsson's sales from professional services surged 31 percent year-on-year.

Multimedia businesses, such as mobile TV, have also been witnessing robust growth in recent years. Svanberg expects multimedia to be a major force in the global telecoms industry. To accelerate its multimedia growth, Ericsson recently restructured its global operations and established a new business division, the Multimedia Unit.

Ericsson's China operations are now also being restructured in line with its global realignment. Svanberg said Ericsson is open to acquisitions in the multimedia sector, including China.

The CEO said Ericsson is in a position to exploit business growth and maintain or even expand its leadership in China's future 3G (third generation) market, given the firm's strong technological know-how and marketing capabilities.

Below are extracts from a recent interview China Daily conducted with Svanberg about how Ericsson will explore merger and acquisition (M&As) opportunities and contribute to the growth of China's telecom market.

Q: You have said Ericsson will continue exploring opportunities for mergers and acquisitions (M&As) if necessary. Can you give a hint about the direction of future M&A activities? Ericsson recently restructured its business and formed a new division, the Multimedia Unit. Will future M&As occur in that area? And given the continuing consolidation of the global telecoms market, will Ericsson consider buying some companies in China?

A: First of all, it's always a better alternative if you have the capability to realize organic growth and conduct R&D yourself, because when you acquire a company there is always the integration issue.

On the other hand, if you acquire a company, it gives you a chance to leapfrog a bit. When you have some bolt-on acquisitions, you go faster. That could be an advantage, which is bigger than the regulation challenges.

With that background, mobile infrastructure is an area where we have all the necessary competences and products. So that is not likely (for us) to conduct acquisitions (in that area). For example, in terms of IP technology, we are seeing more convergence of next-generation networks. Those are technologies of competences that we are in the process of developing, but we are also studying if we can accelerate that work by acquiring companies.

Multimedia is also an area where we always believe we can accelerate (business growth) if we can find the right companies and acquire them. Finally, in (professional) services, it could also be an opportunity for us to get quicker access to more skills, such as in system integration.

From a general point of view, acquisitions are not more likely to occur in China. But neither are they less likely to happen elsewhere. There are always interesting opportunities in China.

Q: Nokia recently secured a network contract from Guangdong Mobile, which could be a breakthrough for Nokia as Guangdong, the largest single provincial mobile telecoms market in China, used to be an area dominated by Ericsson. What do you think of Ericsson's current competitive edge, especially after a slew of mergers and acquisitions in the industry, such as the Alcatel-Lucent and Nokia-Siemens tie-ups?

A: If you have been following Ericsson's sales, you will see thay fluctuate a little bit between quarters. But overall they are very stable and showing strong momentum. So we defend our market positions quite well. We have a stable position. In certain provinces, we are bigger than anyone else.

Overall, we have been in China for about 114 years. We probably have the strongest position of all the vendors. We have one-third of the market. I don't really see how that will change. I'm sure that (mergers) will help our rivals in certain situations, but they may also open up opportunities for us (to grow).

Q: What are your expectations for the performance of Ericsson's China operations? What is your long-term goal for the Chinese market?

A: On average, we estimate that we have a 33-35 percent share of the GSM market in China. Our ambition is to secure that market share also through the transition to 3G. That is definitely difficult to say as we even don't know when 3G will happen. But we do have that prediction.

We do understand that Chinese vendors will get a much bigger role in 3G network business than they had in 2G network business. But on the other hand, there are several international 2G vendors that now are not providing equipment to 3G. We will try to hold on to our market share.

(Xinhua News Agency November 28, 2006)

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