Ericsson has presented a new, more focused business strategy, saying it wants to simplify the organisation, and named a new executive team. CEO Borje Ekholm, who took over at the start of this year, said the announcement comes after a strategy review, which showed that the group strategy was just not yielding expected returns. The company now wants to move “with speed” to restore profitability as a priority, while revitalizing its technology and market leadership, with the focus going to the development of market-leading systems using 5G, IoT and the cloud.
Ekholm expects the new strategy to yield “significant improvements” already in 2018 and to at least double the 2016 group operating margin, excluding restructuring charges. The associated restructuring charges, for this year, will come out at SEK 6-8 billion, including SEK 2 billion in the first quarter. The company had previously guided for SEK 3 billion. Impairments on the Media and IT & Cloud activities will have an impact on the operating profit in Q1 of SEK 3-4 billion, with no effect on cash flow.
In order to achieve its goals, Ericsson said it will increase the emphasis on systems, and combine products and services. It will also accelerate investments both in R&D and services capabilities in selected core areas to ensure it can offer leading solutions.
Concerning portfolio changes, the company will now focus and strengthen core operations, pushing investments in key areas of Networks, including Network Rollout, to support a continued global rollout of 4G and establishing a leading position in 5G.
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 to re-establish profitability. Ericsson will selectively increase investments, noting this was a strategically important area for customers going forward.
The IoT strategy will be shifted meanwhile from a systems-integration-led approach to a platform- and solutions-led strategy to better leverage global scale and industry expertise. The Managed Services strategy will emphasize automation and going back in the black.
Ericsson will explore strategic opportunities for the Media business while continuing to develop media solutions, to enable the business to scale and succeed in the evolving media landscape. Media will be divided into two separate units, Ericsson Broadcast & Media Services and Ericsson Media Solutions. The company will also explore strategic opportunities for the IT Cloud Infrastructure hardware business.
The total organisation of the company will be simplified. The new structure will have three Business Areas, namely Networks, Digital Services and Managed Services, as well as two separate units for the Media business, Ericsson Broadcast & Media services and Ericsson Media Solutions. The current 10 regions will be reduced to five Market Areas, all represented in the executive team. From the second quarter, Segment Media will be renamed Segment Other and Segment IT & Cloud will be renamed Segment Digital Services.
