© ericsson Electronics Production | March 28, 2017
Ericssons new business strategy to return to former glory
Ericsson says that it will pursue a more focused business strategy to revitalise technology and market leadership as well as improve the group profitability.
The overall strategy is to enable service providers to expand their business across industries and into new profit pools. The company will drive the development of solutions, fully leveraging the potential of 5G, IoT and cloud. Restoring profitability is key and Ericsson will start by focusing the portfolio to fewer areas and securing effectiveness and efficiency in operations. Ericsson says it will increase emphasis on solutions across the company, combining products and services. In parallel the company will also accelerate investments both in R&D and services capabilities in selected core areas. Börje Ekholm, Ericsson President and CEO, says: "For some time Ericsson has been challenged on both technology and market leadership and the group strategy has not yielded expected returns. 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." Portfolio changes Ericsson will take some steps to focus and strengthen the core portfolio – this includes accelerated and increased investments in key areas in Networks to support a continued global rollout of 4G and establishing a leading position in 5G. Target the Network Rollout business on Ericsson's own networks portfolio. The ambition is to optimise the end-to-end offering to address customers' needs. The work to improve profitability in this area will be further sharpened. For the newly created Digital Services Business Area, including cloud based virtualized network infrastructure and applications, management and monetization software (OSS/BSS) and related services capabilities, the near term focus is on re-establishing profitability. As this area is strategically important Ericsson will also selectively increase our investments. Shift the IoT strategy from a systems-integration-led approach to a platform- and solutions-led strategy to better leverage our global scale and industry expertise. Refocus Managed Services strategy with emphasis on automation, fully leveraging the global scale and OSS capabilities, to provide high-tech services and cost efficient operations. Short term financial implications As a consequence of the change in Group strategy, certain intangible assets including capitalized development within current segments Media and IT & Cloud will be impaired in Q1. Ericsson estimates the operating income impact of this in Q1 to SEK 3 - 4 billion (EUR 314.4 – 419.2 million) with no impact on cash flow. As a result of a planned higher pace in cost reductions, with current visibility we estimate restructuring charges for 2017 to amount to approximately SEK 6 - 8 billion (EUR 628.9 – 838.5 million), compared to previous estimate of SEK 3 billion (EUR 314.4 million), of which approximately SEK 2 billion in Q1. Separately, provisions of an estimated SEK 7 - 9 billion (EUR 733.7 - 943.3 million) will be required in Q1, triggered by recent negative developments related to certain large customer projects.
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