Ericsson’s bid to turnaround its fortunes through an ongoing restructuring and cost cutting effort is beginning to “pay off”, CEO Borje Ekholm said, as the struggling Swedish vendor saw some light at the end of the tunnel with a narrowed net loss for Q1 2018.
The company, which announced in mid-2017 it would make sweeping changes across its business through a series of cost cutting measures, reported a net loss of SEK0.3 billion ($35.6 million) from SEK11.3 billion reported in Q1 2017. Net sales, however, continued to drop, from SEK47.8 billion in Q1 2017 to SEK43.4 billion, but its gross margin improved from 15.7 per cent to 34.2 per cent.
Commenting in a statement, Ekholm put the improved performance down to an execution of its business strategy, which is intended to improve efficiency in service delivery and also cutting common costs.
During the quarter, the company reduced its total workforce by more than 3,000, taking the overall reduction to almost 18,000 since announcing the restructuring last July.
Speaking to Mobile World Live by phone today (20 April), Helena Norrman, SVP and head of marketing and corporate relations at Ericsson (pictured, right) said the company was also “tracking well” towards its target of achieving SEK10 billion in savings by mid-2018, with a run rate reduction of SEK8.5 billion at the end of Q1.
“It’s been a lot of hard work but what we can see in this quarter is the plans are delivering results,” she said. “We see costs coming down, efficiency improving and also R&D investments paying off in terms of a more competitive portfolio, so we are tracking well towards the target. It is encouraging to see traction in this quarter.”
5G, Huawei and ZTE
As with the bulk of the industry, Ericsson is pinning a lot of hopes on 5G, the next-generation of networks, to fuel sales in the foreseeable future. However, this week Huawei, one of Ericsson’s major rivals, questioned whether 5G had been overhyped.
Norrman suggested this was not the case, stating Ericsson continues to see a lot of interest in the technology from its customers.
“We base our assessments on discussions with our customers…we have the first commercial contracts coming in already this year and even though it is not big volumes we have, we feel we are very well positioned from a technology point of view. We see interest in the market and we don’t have any other view on it.”
Norrman also said the company didn’t have “any comment” relating to the business potential which could arise as a result of US companies being banned from purchasing equipment from another one of Ericsson’s rivals, ZTE, for seven years, an announcement made by the US government this week.
“It is too early to speculate on that – our focus is on the trade compliance part and ensuring that we are compliant with the last development.”
Breaking out the Q1 figures into segments, Ericsson’s Networks business hit sales of SEK28.6 billion, a 10 per cent decrease year-on-year, primarily due to lower LTE investments in mainland China and the completion of larger projects in South East Asia. The decline was partly offset by “strong growth” in Europe, Latin America, Middle East and other areas in Asia. The company also said investment in network expansions and 5G readiness in North America continued.
For its digital services business, sales slipped 8 per cent to SEK7.7 billion, which was put down to a decline in legacy products. However, the company said the momentum was strong in the “new portfolio of 5G-ready and cloud native products, with several important customer wins in the quarter”.
Managed Services sales of SEK5.5 billion were down 8 per cent “as a result of contract reviews and reduced variable sales in certain large” networks contracts. The decline was offset by sales in Managed Services IT, which showed good growth.
Norrman said the company had completed 31 out of 42 customer contract reviews, with an expected profit improvement of SEK700 million going forward in Managed Services. The company also completed 11 out of 45 contact reviews for its digital business, but will take “longer to complete”.
She also said there was no update on its media business, and the plan remained to conclude its divestment of the unit in Q3.