Executive Word -- R&D Strategy Is Key To Success

Dec. 21, 2004
Kurt Hellstrom, president and CEO of L.M. Ericsson Telephone Co., talks to IndustryWeek about the technology industry's tumultuous ride.
Kurt Hellstrom President and CEO L.M. Ericsson Telephone Co., Stockholm Born: Dec. 12,1943. Education: Master's degrees from the Royal Institute of Technology in Stockholm and from the Stockholm School of Economics. Career Highlights: 1984: Joined Ericsson after 25 years in the telecom industry, with a focus on sales and marketing. 1990: Became head of Ericsson Business Area Radio Communication and President of Ericsson Radio Systems AB. 1999: Appointed executive vice president of L.M. Ericsson Telephone Co. and president of Ericsson Asia Pacific Limited in Hong Kong. July 7, 1999: Appointed President of L.M. Ericsson Telephone Co. 2000: Became Ericsson's CEO. Family: Wife, Marianne. Three children. Interests: Riding a Harley-Davidson motorcycle in his spare time. Has also competed in cross-country skiing, ice hockey and sailing competitions in the past.
L.M. Ericsson Telephone Co., with annual sales approaching $30 billion, is one of the world's largest manufacturers of telecommunications equipment. IndustryWeek contributing editor Tom Mudd spoke with Kurt Hellstrom recently about the lessons he and others in the sector have learned from the telecom downturn.IW: How has the technology sector's downturn changed the way companies such as Ericsson look at their planning?Hellstrom: What shook the whole industry last year was not about technology. It was a general downturn in the global economy. Despite tough market conditions, we have continued to outperform our competitors in our core business, mobile systems. A key driver behind our leading position is our long-term commitment to be technology leaders. We have not stopped spending on research and development, even when it would have improved our balance sheet. Today, we hold the largest patent portfolio in the market-also for 3G (third-generation wireless). We know there is a strong link between R&D and a company's market position. The fundamentals of the mobile phone industry are changing. We believe it will soon be similar to the PC industry. A large number of companies will build consumer products, based on core components from a small group of specialized companies. Ericsson has positioned itself for this shift from a vertical to a horizontal industry. In addition to our joint venture with Sony (Sony Ericsson Mobile Communications, which was set up last year to develop mobile phones), we have taken the position as one of the few that can supply the advanced core handset technology. We have created a dedicated company, so we now offer our core technology to other handset makers on licensing terms. IW: Now that you've gone through a period of restructuring, how healthy is Ericsson's future and the future of your industry?Hellstrom: I think that most people would agree that the past year has been the toughest in the history of telecom, certainly the most challenging in my 30 years in this business. However, I believe we have left the worst behind us. Our industry is driven by the basic human need to communicate. Mobile phones are still unknown to the majority of the world's population. There is a strong drive for growth. I am confident about the future of this business, because even with the current unease in the market, our long-term forecasts for market subscriber growth still stand. We are set to cross 1 billion mobile subscribers very soon, and 1.6 billion subscribers in 2005. This year the number of subscribers will grow 20%-25%. The underlying demand for more network capacity is very strong. 3G is about making new technology work with existing technology, evolving from one generation to the next. We have always worked with mobile technology generations in 10-year cycles. Each new generation is carefully designed to fit with the earlier, without disruptions in traffic or revenue streams. Mobile systems will never be completed-one technology does not replace another in one go. Technology is evolved. This is the only way to leverage the investments that are already made. It is a much greater challenge than just handing out equipment-anyone can do that. Ericsson's 3G solutions were created from the start to fit seamlessly with existing networks. This means that operators can get an early start with multimedia services, and still limit the risk of over-investing. For our customers, the biggest investment lies in the services, not the technology behind them. Ericsson's trademark has always been to handle everything from end-to-end. We are the only supplier that can provide all 2G and 3G standards. That is probably why we serve the world's 10 largest mobile operators. The end-to-end concept is even more important now because mobile business is becoming more complex with 3G. That is why we remain committed to our long-standing position as a complete provider of mobile solutions-everything from systems and applications to services and handsets. E-mail nominations for Executive Word to Editor-in-Chief Patricia Panchak at [email protected].

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