History of Sony Ericsson

Ownership until the 1990s

L M Ericsson & Co started its operations in 1876 as a small mechanical engineering shop owned jointly by Lars Magnus Ericsson and Carl Johan Andersson. The company was run by the two partners for ten years, but in 1886, Lars Magnus Ericsson took over as the sole owner. Andersson remained in the company until 1908, however, and was employed as a shop supervisor.

When the company was transformed into a limited liability company in 1896, this was not primarily because the company required capital. Instead, the objective was to limit personal liability through incorporation. Incorporation was thus confirmation that the company was on its way to becoming an international enterprise. Incorporation also did not entail any changes in management. Lars Magnus Ericsson was appointed as both president and chairman of the board.

All the companies stock, consisting of one thousand shares and corresponding to a share capital of SEK one million, was also transferred to Lars Magnus Ericsson as payment for all the company’s assets. However, he elected not to retain all the shares himself, but instead distributed 100 shares as a bonus to the company’s oldest employees.

During the first decades of the 1900s, there were several changes in Ericsson’s ownership structure. The first of these was a strategically important transaction at the turn of the century, when Ericsson acquired AB Telefonfabriken from Stockholms Allmänna Telefonaktiebolag (SAT).

Payment was effected with Ericsson shares, meaning that SAT with its major shareholding gained direct influence in Ericsson. At the same time, Lars Magnus Ericsson’s importance for the company declined, due to a reduction in his ownership share and his resignation from both management and the board of directors.

This transaction created significant mutual interests between Ericsson and SAT, which was one of Ericsson’s largest customers, and led to a merger of the two companies in 1918.

The share capital of the merged company, Allmänna Telefon AB Ericsson, was based on the combined net assets of the two companies, which meant that of the new company’s equity of SEK 51.5 million, 56 percent derived from SAT and 44 percent from Ericsson. As a consequence, interests associated with SAT came to dominate the new company.

The previous president of SAT-owned Stockholmstelefon, Karl Fredrik Wincrantz, was appointed sole president of Ericsson in 1925, after having shared the post with Hemming Johansson for three years. Wincrantz consolidated his power through his control over strategically important shareholdings. To guarantee Ericsson’s capital requirements, Wincrantz contacted financial magnate Ivar Kreuger, whose interests in the telephone market resulted in his acquisition of a majority holding in Ericsson in 1930. At that time, Kreuger controlled a majority of both preferred A series shares and the weaker B series shares, which carried one thousandth of a vote.

The financial difficulties in which the Kreuger group found itself in the early 1930s, however, contributed to the signing of an agreement between Ivar Kreuger and International Telegraph & Telephone Corporation (ITT), in which the American company gained a majority ownership share of Ericsson.

Following Kreuger’s death, the Kreuger group’s shareholding was taken over by ITT, Svenska Handelsbanken and Stockholms Enskilda Bank (part of the Wallenberg sphere), which together formed an ownership consortium. As a foreign owner, ITT was never able to take advantage of its majority holding, but through a special agreement, the American company was allowed to retain a shareholding corresponding to 35 percent of the voting rights.

After the turbulent ownership changes during the 1920s, Ericsson’s ownership structure from 1932 onward was remarkably stable. Apart from ITT, which during the 1930s owned about a third of Ericsson’s A series shares, Handelsbanken had a shareholding of slightly more than 20 percent, while the Wallenberg sphere held just under 7 percent of the A series shares.

During the post-war period, ITT’s ownership share was gradually reduced and divested completely in 1960, when ITT’s A series shares were acquired by the Wallenberg sphere and the B series shares were sold on the international market. As a result, the Wallenberg group’s ownership share increased to about 24 percent of the A shares, while the Handelsbanken group held about 21 percent.

Following these changes during the first half of the 1960s, a relative balance was achieved between the two principal owners that was strengthened over the following decades, as the two groups of owners increased their holdings in Ericsson, which at the end of the 1990s amounted to slightly more than 40 percent of the voting rights for both groups. Ownership disputes were avoided up until the mid-1990s through a consortium agreement, which was subsequently replaced by a gentleman’s agreement.

 

The formation of Sony Ericsson

Sony Ericsson, the mobile telephone company formed by Ericsson and Sony in 2001, was born of two, coincidental, serious crises.

The first concerned Ericsson’s mobile telephone operations. With its roots as far back as the 1930s, the company became a major player as late as the mid-1990s when mobile telephone use took off. In just a few years, Ericsson managed to become the world leader with a 17 % share of sales, an unexpected success for the huge system specialist whose foremost skills to that point had been selling to telephone administrations and other operators. As late as 1993 the company had only sold 800,000 phones. By 1999, that number had reached 32 million! At top market, telephones were airmailed to customers in Europe.

However, the first external signs that the success would be short-lived appeared in the summer semi-annual report 1998 when Sven-Christer Nilsson, who had just been appointed CEO, was forced to report on slower invoicing and price press. The demand on the rapidly growing market was shifting to cheaper, less advanced models. The competition in the form of the Finnish company Nokia grew apace based on its stronger eye for design, market segmentation and efficient production. To top it off, Ericsson had begun to experience technical problems with its telephones.

For the next three years the company would be forced to admit to a number of problems and unexpected events, ranging from problems with circuits and new model delays to a fire at a subcontractor and lack of back-up systems. Still, the largest problem was probably the lack of skills with consumer products most clearly shown in the legendary answer to the question of why the Swedes did not try to imitate the highly successful Finnish telephone design: “If you want a phone that looks like a piece of soap, then …” In 2000 the operation was forced to report the frightening loss of 24 thousand million SEK, a sum that included allocations for restructuring.

By this time the telecom crisis, the other, large crisis, had begun to affect mobile telephone sales. This one was bottomless, caused as it was by extreme, stock market expectations on the new 3G technology for mobile systems. Expressions of this included the fantastic prices tele-operators were willing to pay for 3G licenses at the auctions held at the time by a number of countries. Ericsson was affected along with the others when the new mobile computer systems failed to deliver as promised and the operators suddenly were broke 

April 24, 2001, saw the announcement that Ericsson was merging its mobile telephone operations with Japan’s Sony, forming Sony Ericsson with each company owning 50 %. The Japanese electronics giant was to contribute its know-how in design and consumer sales that Ericsson had not been able to acquire. Sony had been mentioned as a possible partner as early as 1998 when Sven-Christer Nilsson had discussed Ericsson’s adaptations to all the new possibilities with the Internet.

The new, mutual company was headquartered in London. Ericsson kept hold of platform production and the basic mobile telephone technology. In October of that year most of the mobile telephone operation had been transferred, but only after dramatic personnel cutbacks. Thus the new company began operations with some 4,000 employees. The manufacture of Ericsson’s mobile telephones, already mostly subcontracted, disappeared for good from Sweden in 2003.