-
Focused business strategy and improved internal
efficiency to restore profitability, significantly improving
operating income and margin, and revitalizing technology and market
leadership
-
Reallocated resources and increased investments
in the following core portfolio areas: networks, digital services
(OSS/BSS and telecom core) and Internet of Things (IoT)
-
Refocused strategy for Managed Services to
improve profitability
-
Strategic opportunities to be explored for the
Media and Cloud Infrastructure hardware businesses
-
Write down of assets to be made in Q1, 2017,
with an estimated impact on operating income of SEK 3-4 b.
Restructuring charges estimated to approximately SEK 6-8 b. for
2017, of which approximately SEK 2 b. in Q1.
-
Separately, provisions of an estimated SEK 7-9
b. will be made in Q1, triggered by recent negative developments
related to certain large customer projects
-
Simplified organizational structure and new
appointments to the Executive Team (separate release)
Ericsson (NASDAQ:ERIC) will pursue a
more focused business strategy to revitalize technology and
market leadership, improve group
profitability and enable customer success. The overall
strategy is to enable service providers to expand their
business across industries and into new profit pools. We will drive
the development of market-leading solutions, fully leveraging the
potential of 5G, IoT and cloud.
Restoring profitability is key and we will start
by focusing the portfolio to fewer areas and securing effectiveness
and efficiency in operations.
We will increase emphasis on solutions across the
company, combining products and services, to drive efficiency and
better meet customer needs and requirements. This will also be
reflected in a simplified organization. In parallel we will also
accelerate investments both in R&D and services capabilities in
selected core areas to ensure that we can offer our customers
leading solutions.
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
We will take the following steps to focus and
strengthen the core portfolio:
Accelerate and increase 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.
Ambition is to optimize the end-to-end offering to address our
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 to our customers going forward, we
will also selectively increase our investments to enable Ericsson
to be the partner of choice for our customers on their journey to
become digital service providers.
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 our global
scale and OSS capabilities, to provide high-tech services and cost
efficient operations. Full attention on turning business
around from a negative result in 2016, addressing low- performing
operations and contracts.
Explore strategic opportunities for the Media business while continuing to develop our media
solutions, to enable the business to scale and succeed in the
evolving media landscape. Our media business consists of two parts,
managed services and technology solutions. We will now create two
separate units, Ericsson Broadcast & Media Services and
Ericsson Media Solutions, to create a stronger operational focus.
Video traffic today constitutes over 50% of mobile data traffic
globally, and is forecast to grow to 75% by 2022. We have built a
strong and competitive portfolio and we have become a world leading
supplier of TV & Media products and services.
As a consequence of our increased focus on
software technology development within virtualized core networks
and management and monetization software (OSS/BSS) we will explore
strategic opportunities for the IT Cloud
Infrastructure hardware business.
Ekholm continues: "With these changes I am
confident that we will create the most intelligent and
efficient networks, deliver the most competitive solutions and
constantly innovate to enable our customers to succeed in
a fully connected world."
Profitability and
efficiency
In addition to the actions above, the company will
continue our work to rationalize legacy portfolio and drive
company-wide efficiency measures. Combined, these actions will
establish a new and stronger earnings level for Ericsson.
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, we foresee
significant improvements already in 2018. And beyond that 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."
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 b. 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 b., compared to
previous estimate of SEK 3 b, of which approximately SEK 2 b. in
Q1.
Provisions related to events in
Q1, 2017
Separately, provisions of an estimated SEK 7-9 b.
will be required in Q1, triggered by recent negative developments
related to certain large customer projects.
New company structure
The company also announces an organizational
structure to support the long-term strategy. A set
of changes will be made to simplify the organization to
increase efficiency and speed up time to market and
customer responsiveness.
In addition, actions are taken to increase
accountability and empowerment throughout the organization. Today
the company has significant common costs that are allocated. These
resources will gradually be moved out to business and market
areas.
The new organization and P&L structure is
built on a simplified model, combining products and services where
relevant into solutions to increase internal efficiency and better
reflect customer needs and requirements. The new structure will
have three Business Areas, 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 are reduced to five Market
Areas, all represented in the Executive Team. The new Market Area
set up will align better to our global customers and reduce the
number of interfaces for them.
The new Executive Team will be effective April 1,
2017. All changes to structure and management can be found on
Ericsson press release page.
The first quarter of 2017 will be reported in
accordance with the Segment structure communicated on March 10,
2017, see press release. From Q2 and onwards Segment Media will be
renamed Segment Other and Segment IT & Cloud will be renamed
Segment Digital Services. Any additional changes to Segment
reporting and disclosures as a consequence of today's announcement
will be communicated in conjunction with the Q1, 2017 report.
CONFERENCE CALLS FOR ANALYSTS,
INVESTORS AND JOURNALISTS
Two conference calls for financial analysts,
investors and journalists will begin at 9.00 CET and 15.00 CET.
President and CEO Börje Ekholm and CFO Carl
Mellander will comment on today's announcements and take
questions.
To join the conference call, please call one of
the following numbers:
International/UK: +442030089801 / UK Toll-Free
Number: 08082370059
SE: +46856642691 / SE Toll-Free Number:
0200883817
US: +16465025116 / US Toll-Free Number:
+18557532235
Please call in at least 15 minutes before the
conference call begins. As there is usually a large number of
callers, it may take some time before you are connected.
A live audio webcast of the conference call will
be available at: www.ericsson.com/investors and
at: www.ericsson.com/press
REPLAY:
A replay of the conference call will be available
from about one hour after it has ended until April 4, 2017.
Sweden Toll Number: +46 85 664 2638
International Number: +44 20 3426 2807
Conference Number: 685390# - for 09.00 call
Conference Number: 685383# - for 15.00 call
FOR FURTHER INFORMATION, PLEASE CONTACT
Ola Rembe, Head of External Communications,
Ericsson
Phone: +46 73 02 44 873
E-mail: ola.rembe@ericsson.com
Ericsson Corporate Communications
Phone: +46 10 719 69 92
E-mail: media.relations@ericsson.com
Ericsson Investor Relations
Phone: +46 10 719 00 00
E-mail: investor.relations@ericsson.com
NOTES TO
EDITORS
For media kits, backgrounders and high-resolution photos, please
visit www.ericsson.com/press
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Ericsson is a world leader in
communications technology and services with headquarters in
Stockholm, Sweden. Our organization consists of more than 111,000
experts who provide customers in 180 countries with innovative
solutions and services. Together we are building a more connected
future where anyone and any industry is empowered to reach their
full potential. Net sales in 2016 were SEK 222.6 billion (USD 24.5
billion). The Ericsson stock is listed on Nasdaq Stockholm and on
NASDAQ in New York. Read more
on www.ericsson.com.
This information is information that
Telefonaktiebolaget LM Ericsson is obliged to make public pursuant
to the EU Market Abuse Regulation. The information was submitted
for publication, through the agency of the contact person set out
above, at 07.30 CET on March 28, 2017.
Ericsson presents focused business
strategy
This
announcement is distributed by Nasdaq Corporate Solutions on behalf
of Nasdaq Corporate Solutions clients.
The issuer of this announcement warrants that they are solely
responsible for the content, accuracy and originality of the
information contained therein.
Source: Ericsson via Globenewswire
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