Ericsson today said its sales dropped 11 percent to SEK 46.4 billion or $5.23 billion in the first quarter of 2017 — fuelled by 13 percent dip in network business.
The Sweden-based telecom equipment maker reported a net loss of SEK 10.9 billion or $1.23 billion against a net income of SEK 2.1 billion in Q1 2016.
The revenue performance of Ericsson indicates that the new CEO Borje Ekholm could not assist the telecom equipment maker in improving the sale of the company.
Ericsson has generated SEK 34.9 billion (–13 percent) revenue from Networks, SEK 9.5 billion (–3 percent) from IT & Cloud and SEK 2 billion (–20 percent) from media business.
Ericsson has generated SEK 11.8 billion (-10%) from North America, SEK 2.9 billion (-29%) from Latin America, SEK 1.7 billion (-4%) from Northern Europe and Central Asia, SEK 3.6 billion (-17%) from Western and Central Europe, SEK 4.4 billion (+1%) from Mediterranean, SEK 3.5 billion (-3%) from Middle East, SEK 1.9 billion (-9%) from sub-Saharan Africa, SEK 2.4 billion (-10%) from India, SEK 5.6 billion (flat growth) from North East Asia and SEK 5.6 billion (+7%) from South East Asia and Oceania.
“Our financial performance in the first quarter continued to be unsatisfactory. Networks business has delivered a solid result despite lower sales, while losses in segments IT & Cloud and Media increased significantly,” Borje Ekholm said.
Ericsson will be taking steps to improve profitability while also taking action to revitalize technology and market leadership.
Future tension for Ericsson
# Ericsson is expecting that industry trends and business mix in mobile broadband from 2016 are expected to prevail in 2017.
# RAN equipment market in USD is estimated to decline by 2 percent to 6 percent in 2017.
# The renewed managed services contract with reduced scope in North America will impact sales negatively in Q2 and Q3 2017.
# Addressing low-performing operations in Managed Services and optimizing the offering within Network Rollout are expected to reduce full-year sales by up to SEK 10 billion by 2019
# The restructuring charges for 2017 are estimated to be SEK 6-8 billion
Ericsson said North America sales declined, mainly due to the reduced scope of a renewed managed services contract. Ericsson’s mobile broadband infrastructure sales in North America were stable. IT & Cloud sales increased, driven by digital transformation projects reaching milestones in the first quarter.
Networks sales fell due to lower investment levels in certain markets, lower IPR licensing revenues and the renewed managed services contract with reduced scope in North America. Networks operating margin improved sequentially was supported by an improved business mix and a more competitive portfolio. The Ericsson Radio System platform contributed to improving profitability and stabilizing the market share position.
IT & Cloud is a strategic area for Ericsson as its customers will digitalize their operations and invest in a future network architecture based on software-defined logic.
Ericsson will draft strategies to bring new IT and Cloud products, streamline services organization and tighten the contract scoping. Ericsson will sell complete solutions in telecom core, OSS and BSS, including hardware, software and services.
Ericsson is seeking alternatives for its IT cloud infrastructure hardware business to gain necessary scale to offer competitive solutions to customers.
Ericsson said its new strategy builds on reallocating resources and investments to core portfolio areas, fully leveraging the potential of 5G, IoT and cloud.
Ericsson will refocus Managed Services and Network Roll-out to improve profitability. By addressing low-performing operations within Managed Services and optimizing the offering within Network Roll-out, full-year sales are expected to be negatively impacted by up to SEK 10 billion by 2019.
“We are not satisfied with the cost structure of the company and the existing cost and efficiency program is not yielding sufficient results,” Ericsson CEO said.
“Based on current profitability, we will intensify our efforts to reduce cost with focus on structural changes to generate lasting efficiency gains and increase cost competitiveness. Our target is to surpass previous ambitions. However, we need to increase investment in certain core areas to develop our product portfolio, which can temporarily increase cost levels,” Ericsson CEO said.
The more focused business strategy is expected to result in a significantly improved profitability already in 2018. Beyond 2018, we believe that we can at least double the underlying 2016 operating margin.
Baburajan K
editor@telecomlead.com
