By Matthias Verbergt 

STOCKHOLM-- Ericsson AB ousted its chief executive as it battles slowing demand for its cellphone towers and switches, and faces fresh competitive threats from old and new players alike.

The company said Monday Hans Vestberg, who had led Ericsson since 2010, was stepping down immediately. The board named Ericsson's current chief financial officer, Jan Frykhammar, as interim CEO.

Ericsson shares were up more than 2% in early afternoon trading. The stock has been down more than 40% since hitting a seven-year peak in April 2015. Back then, big, western telecom giants--Ericsson's largest customers--were boosting investment in equipment, as they rolled out their latest 3G and 4G network offerings. That spending has since tapered off. Spending is also falling in emerging economies hit by recent market turbulence.

As demand has dried up, new suppliers have emerged offering much of the same equipment at cheaper costs. The biggest of those new players is Huawei Technologies Co., a Chinese firm barely on the industry's radar when Mr. Vestberg first took the reins at Ericsson.

Sales to telecom carriers by Huawei, which also makes handsets, eclipsed Ericsson's total global sales two years ago. On Monday, Huawei reported a 40% rise in first half-year revenue.

The slowing demand and new competition have reshaped the telecoms-equipment market in the past few years. It helped drive Europe's other big player, Finland's Nokia, to acquire Franco-American giant Alcatel-Lucent in a deal completed earlier this year.

In response to that tie-up, Ericsson launched an unusually deep cooperation pact with Cisco Systems Inc. of the U.S., the two companies agreeing to join forces in fields like research and development.

Ericsson has also been cutting costs sharply. Last week, it announced its latest round of job cuts after posting a 24% drop in second-quarter net profit. It said it aimed to double its operational savings by 2017 by reducing R&D costs and capturing efficiency gains from restructuring efforts, as well as from its partnership with Cisco.

In the first half of this year, Ericsson said it shed 8,000 employees. The cost-cutting disclosed last week would result in more layoffs among its current 116,500-strong staff, but the company hasn't provided details.

Ericsson has also been hit by a series of probes into past business practices. There is no indication that Mr. Vestberg has been implicated in any of the investigations. Last month, Ericsson said it was being investigated by U.S. authorities over possible corruption related to the U.S. Foreign Corrupt Practices Act. It didn't disclose the nature of the probe, but said at the time the company strives "to at all times conduct our business in compliance with applicable laws."

Two days later, Ericsson disclosed that seven of its current and former employees had been served with summons by Greek authorities over allegations of possible corruption in relation to a defense deal that a former Ericsson subsidiary completed with Greece in 1999. Ericsson said it is cooperating with the probe.

Amid all that, Ericsson's board had been contemplating a move to replace Mr. Vestberg for a while. "This has been talked about and developed over some period," said Chairman Leif Johansson in an interview. "Finally the board made a decision on Sunday night."

Mr. Johansson said the search for a permanent replacement for Mr. Vestberg might take several months, suggesting that the leadership change "is about finding a strategy to find growth and value in that whole new situation."

Mr. Vestberg said in an Ericsson statement that as the industry "enters a next phase...it is time for a new CEO to step in and continue the work to ensure Ericsson's industry leadership." He wasn't immediately available for comment.

Mr. Vestberg had recently become a lightning rod for criticism over his high pay and his preference for private business jets over commercial travel. That hit a particular nerve in egalitarian Sweden.

Ericsson's longtime investors, Investor AB and Industrivärden AB, two Swedish investment firms that, combined, control more than 35% of Ericsson's voting rights, said they supported the move. "It was a unanimous board decision," said Stefan Stern, a spokesman for Investor.

Write to Matthias Verbergt at Matthias.Verbergt@wsj.com

Corrections & Amplifications

Ericsson said the cost cutting disclosed last week would result in more layoffs among its current 116,500-strong staff. A previous version of this article said Ericsson had a staff of 166,500. (July 25, 2016)

 

(END) Dow Jones Newswires

July 25, 2016 11:57 ET (15:57 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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