Ericsson banks on Networks to fuel 2020 targets

08 NOV 2018

Ericsson upped its net sales target for 2020, driven by its Networks business, as the vendor continues to see positives from a long-term turnaround strategy.

In a statement released before the company holds its Capital Markets Day 2018, Ericsson said it had focused on simplifying and stabilising the business over the past seven quarters, including stopping top-line decline, which had led to a “strong foundation of stability and profitability”.

The upturn was evident just a few weeks ago, when it swung to a Q3 profit, driven by cost cutting and sales of 5G-related products in North America.

“As the industry moves to 5G and IoT, we are now preparing to take the next step to generate profitable growth in a selective and disciplined way,” CEO Borje Ekholm said.

For its 2020 outlook, Ericsson said its ambition for net sales had increased to a range of between SEK210 billion ($23.4 billion) and SEK220 billion, from earlier guidance of between SEK190 billion and SEK200 billion. Its operating margin target remained unchanged at 10 per cent, though it aims to increase this to 12 per cent by 2022.

Networks growth
The bulk of the net sales figure will be generated by the Networks business, with the segment’s guidance upped to between SEK141 billion and SEK145 billion from SEK128 billion to SEK134 billion previously. Ericsson expects improvements in currency effects will generate SEK5 billion and said it will retain its Red Bee Media unit, which it tipped to contribute SEK2 billion.

For Networks, Ericsson said it had increased investments in R&D for technology, and cost leadership will continue as a result.

“Growth is expected to come from a stronger market, selective market share gains, and continued expansion of the product portfolio into close adjacent markets,” it stated.

The vendor, which is expecting to see further big gains from operator spend in 5G equipment and services, said “investment in 5G trials will continue” in 2019, to further boost the segment.

Its operating margin goal for Networks in 2020 remains the same at 15 per cent to 17 per cent.

Other units
The company upped its operating margin target for its Managed Services segment to between 5 per cent and 8 per cent (previously 4 per cent to 6 per cent), with focus “shifting to further improving profitability through investments in automation and artificial intelligence”.

In Digital Services, Ericsson said it will continue making cost reductions and efficiency improvements to reach a target of a low single-digit operating margin, with the top priority being “returning to profitability”.

Its strategy for the Emerging Business and Other Focus units is to capture new revenue “through rapid and disciplined innovation building on 5G and IoT”, with a target to break-even by 2020 remaining unchanged.

It may, however, decide to scale up investments, in light of “attractive new business opportunities”.

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Kavit Majithia

Kavit joined Mobile World Live in May 2015 as Content Editor. He started his journalism career at the Press Association before joining Euromoney’s graduate scheme in April 2010. Read More >>

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