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  1. Technology
February 1, 1988

THE TALE OF WOE THAT LED UP TO THE SALE OF ERICSSON’s COMPUTER ARM

By CBR Staff Writer

L M Ericsson AB laims that far from being a classic example of convergence going wrong, the sale of its computer business to Nokia Oy of Finland is an example of convergence in action. We can buy computers from anyone because they’re made to standards now, so we no longer need an in-house operation. A throw-away remark, perhaps disguising the real reason behind the sale of the Datasaab business it bought from the Swedish government in 1981. Ericsson is just the latest in a string of companies that have come unstuck trying to find synergy between computer and telecommunications products. STC Plc has sold most of its own units that would have fitted with ICL, and the only convergence it seems to have found in its acquisition of the UK mainframer is the ability to merge the two companies’ headquarters press offices; AT&T’s move into the computer business is little short of a disaster; Northern Telecom came badly unstuck with the acquisition of two unsuitable and ill-fitting US computer companies, Data 100 and Sycor, and the Vienna is still scarcely visible in the computer business; coming from the other direction, IBM has not been nearly as successful as it imagined it would be in the telecommunications business, Contel, which bought Cadosystems a few years back is well-nigh invisible in computers. Divestitures Ericsson’s acquisition of Datasaab has been a disaster from start to finish – but Datasaab was an unpromising company to acquire, and Saab-Scania was only too pleased to be shot of it. It had struggled for three years to bring out a mainframe answer to IBM’s 370, only to find that when the machines were shipped to the semi-captive market of the Swedish government they didn’t work, and after another couple of years, it handed its mainframe market over to Univac with the figleaf of a Saab-Univac joint marketing company that was Univac Sweden under another name. A highly automated plant to make the D5 minicomputer, used mainly as a banking controller, was impressive in terms of output, less so in terms of profit. For a time, Datasaab was the biggest European volume producer of minicomputers, but losses were mounting. Incompatibility problems with an imaginative but not very successful business system using processors from Computer Automation meant that the bit-slice successor to the D5 was a failure outside the banking world, and by 1979, Saab was despairing of the business and persuaded the Swedish government to take on some of the burden. An optimistic Ericsson with a synergistic gleam in its eye agreed to take Datasaab off the government’s hands and after six years, Ericsson itself is having to now undergo a severe programme of rationalisation to recover from the adventure and offset its high research and development costs. It sold off its US cable business at the beginning of the year and it has just signed the final papers for the sale of its Rifa electronics design and manufacturing unit to Finvest of Finland. Before that, in October 1987, its Facit AB subsidiary, one of Sweden’s oldest office supply firms was sold to Design Function. Ericsson is left now with the bare bones in public telecommunications, cable operations in Sweden and Latin America, defence systems, radio communications, network engineering and construction and signal systems, which is currently a nice little earner but is probably the only division left that may be up for sale. The rationalisation programme will most probably go as far as a link-up with other large telecommunications companies to give it the resources to remain competitive in the development of the next generation of switching equipment, which will be optical, in the next couple of years. Ericsson is evidently in trouble on the cash flow front, despite a healthy order book. In September 1984, Ericsson Information Systems said its aim was to achieve 15% of the European market for business personal computers, garnering over $200m in two or three years. The company’s routine IBM Personal Computer clone was touted on the back of the Swedish reputation for ergonomic design as a way

of winning a ready ear for its sales pitch there but sales were dismal. At the same time, the company was also blaming its third quarter pre-tax loss of $3m on its Information Systems division as well as its cellular radio unit. Its fourth quarter figures showed up in March 1985 as a 29% pre-tax loss at the equivalent of $64.1m and again all eyes were turned towards the Information Systems division, which made losses of $22.6m against profits the previous year of $24.7m on sales up 25% to $969m. At that time the company reported that it was building the 3270-compatible Alfaskop display terminals at a rate of 1,000 a week. It also launched a new 68000-based version of the machine a couple of days later along with a portable, bought in from Matsushita in Japan. In July 1985 the company’s gung ho aims of cornering 15% of the personal computer market began to crumble as it realised its aim of manufacturing 100,000 machines that year would have to be slimmed down to 25,000. It blamed the worldwide slowdown in the personal computer business, but Apple Computer was the only other company echoing its judgement; the likes of Compaq Computer and the UK’s ACT, now Apricot Computer were doing very nicely thank you, while Siemens announced that foreign orders for computers, office equipment and components, mainly the continental market, were up 18% at $6,370m. Pruned By August of 1985, with half year profits down 31%, Ericsson announced that it was looking for a joint venture partner or buyer for around a third of Information Systems, hat the ill fated division would be pruned. Meanwhile, credit rating agency Standard & Poors lowered its rating on Ericsson’s commercial paper to A-2 from A-1 because of its poor financial outlook. In October, Ericsson decided to call it a day in the US after its Ericsson Inc joint venture with Atlantic Richfield sold just 3,000 machines there against a planned 15,000 to 20,000. It cut 2,000 jobs in the US and closed its plant in Anaheim. Profits for the full year in 1985 slumped to a loss of 64.6% at $73.4m with losses in information systems even higher than expected at $119m on sales up 14% to $1,564m. Losses continued through 1986 and Ericsson announced another 2,000 job cuts. Ericsson Data Systems contributed around 42% of the company’s Information Systems’ business, which in turn contributes some 30% of group profits. Ericsson says it is making no capital loss in the sale and that it will use the money it gains to boost its remaining activities, particularly in the telecommunications area. But will Nokia be any more successful with Datasaab than any of the company’s previous owners has been?

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