Ericsson puts in place a more focused strategy to restore profitability

Major consolidation initiated to rationalise legacy portfolio
Ekholm: "I am convinced that Ericsson, on a sustainable basis, can at least double the 2016 Group operating margin"
Ekholm: "I am convinced that Ericsson, on a sustainable basis, can at least double the 2016 Group operating margin"

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In the wake of the company not yielding suitable returns, Ericsson has put in place a revamped and focused business strategy. The company aims to revitalise technology and market leadership, improve group profitability and enable customer success, while enabling service providers to expand their business across industries and into new profit pools.

Börje Ekholm, Ericsson President and CEO, says: "In our strategy review we have listened carefully to customers around the world and made an in-depth analysis of our portfolio and performance. To enable us to immediately take action and move with speed in execution we are today outlining our path to restoring profitability and to lead with innovation and best in class solutions in areas we have decided to focus on."

In terms of portfolio changes, the company has decided to increase investments in key areas pertaining to networks to position itself as a leader in 4G and 5G. In addition, the end-to-end offering in network rollout business will be optimised to improve profitability.

Considering the strategic importance of digital services to the customers, the newly created 'Digital services' unit will work on re-establishing profitability across cloud based virtualised network infrastructure and applications, management and monetisation software (OSS/BSS) and related services capabilities. Alongwith its software focus, Ericsson will also be open to strategic opportunities for the IT Cloud Infrastructure hardware business.

Ericsson is shifting its IoT strategy from a systems-integration-led approach to a platform- and solutions-led strategy.

To turn around the managed services business, the plan is to exert higher emphasis on automation, fully leveraging the company's and OSS capabilities, to provide high-tech services and cost efficient operations.

The company plans to explore strategic opportunities for the media business; and is creating two separate units, Ericsson Broadcast & Media Services and Ericsson Media Solutions, to create a stronger operational focus.

Ekholm says: "While we will continue our work to take out cost at high pace with targets surpassing current ambitions, we will not guide on cost levels going forward as it is an isolated part of the profit and loss statement."

With the actions announced today, and assuming stable market conditions, the CEO foresees significant improvements in 2018. "I am convinced that Ericsson, on a sustainable basis, can at least double the 2016 Group operating margin, excluding restructuring charges. But even more importantly, I think that we can deliver a return on capital employed that will create value for our shareholders," he adds.

As a consequence of the change in strategy, Ericsson estimates the operating income impact of this in Q1 to be SEK 3-4 billion, with no impact on cash flow. The restructuring charges for 2017 have been estimated to amount to approximately SEK 6-8 billion, compared to previous estimate of SEK 3 billion, of which approximately SEK 2 billion in Q1.

Separately, the company estimates that provisions of SEK 7-9 billion will be required in Q1, triggered by recent negative developments related to certain large customer projects.

The company has revamped its organisation structure as well, for efficient execution of its new strategy.

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