Ericsson shakes up structure, sees fall in sales - Mobile World Live

Ericsson shakes up structure, sees fall in sales

21 APR 2016

Ericsson unveiled a management reorganisation to better chase opportunities beyond its traditional networks business and battle fierce rivals Huawei and Nokia, as its Q1 2016 figures showed a two per cent decline in net sales.

“When it comes to structure, we have been focusing a lot on building business in targeted areas while maintaining our core business. We want to expand beyond operators and at some point we need to make changes to support those ambitions,” Ericsson CFO Jan Frykhammar told Mobile World Live.

The last major global reorganisation by the Swedish vendor was in 2010, he said. Only last week CEO Hans Vestberg talked up the need to improve profitability in certain areas.

Under the new structure, two units, Network Products and Networks Services, will continue to focus on ‘core’ activities, while IT & Cloud Products and IT & Cloud Services will target newer, growth areas. There is also a unit for the media industry, as well as another for Industry & Society and IPR & Licensing.

Ericsson’s previously talked about five ‘targeted areas’ for growth (outside of networks) were Cloud, IP Networks, TV & Media, OSS/BSS and Industry & Society.

The software side of OSS/BSS is now under the IT & Cloud Products unit, while the services side goes to IT & Cloud Services. IP Networks will be split between IT & Cloud Products and Network Products, depending on customer.

The idea with the structure is to create better accountability internally, while giving investors clearer transparency about how business units are performing, argued Frykhammar.

The new organisation is effective from 1 July 2016. Financial reporting will follow the new structure as of Q1 2017.

Executive movement
The new structure will see eight new faces joining the company’s executive leadership team. These include Arun Bansal, who is currently head of the radio business unit, who is taking on Network Products under the new structure, as well as Niklas Heuveldop who is becoming chief customer officer and head of sales. He was formerly head of the customer unit serving AT&T.

Another new member is Fredrik Jejdling, the new head of Network Services, who was previously head of sub-Saharan Africa.

There are five departures from the leadership team. These include SVP and head of sales Jan Wareby, who is retiring from the company as of 30 November this year, while CIO Anders Thulin and Mats Olsson, head of Asia Pacific, are both leaving Ericsson as of 1 July 2016.

Sales dip in Q1 2016
Ericsson saw net sales fall in Q1 2016 by two per cent to SEK52 billion ($6.4 billion). Geographically, the company said growth in North America, Mainland China and South East Asia was offset by weaker performances in Europe and some emerging markets.

jan_frykhammar_175x175“We have some revenue but not big numbers yet in Q1,” said Frykhammar (pictured, left), referring to the contribution from Cisco whose partnership with Ericsson (signed in December 2015) was billed as generating incremental revenue in 2016. He expects that to come online more seriously later in the year.

In terms of business areas, both Networks (two per cent) and Global Services (four per cent) saw declines in sales, although the smaller Support Solutions delivered an encouraging 10 per cent growth.

The networks unit was hit by weak macroeconomic conditions in Middle East and Latin America, while sales in Europe were down because a number of mobile broadband projects were completed in 2015. Better news on the 4G front came from North America and China. IPR licensing revenues grew, mainly driven by recently signed contracts which included one-time items. However, software sales in IP and core networks declined.

The fall in sales in Global Services was mainly due to lower network rollout activities in Europe and Latin America. Professional services sales were stable with growth in consulting and systems integration driven by transformation projects. Managed Services sales were stable with 21 contracts signed in the quarter, the company said.

Sales in Support Solutions increased year-on-year due to higher IPR licensing revenues. Software sales in OSS and BSS declined. “However, the underlying demand remains strong in OSS and BSS as data growth and increased focus on customer experience drives operators to transform their OSS and BSS solutions”.

Net income grew by 45 per cent to SEK 2.1 billion. Although gross margin declined, there was an improvement in operating margin driven by reduced operating expenses and a positive currency effect.

Huawei threat
In 2015, Ericsson was passed by Huawei’s carrier business group in terms of revenue. So when does Frykhammar expect the Swedish vendor to take back the lead?

“Oh wow, that’s a difficult question. We try to manage our position in the marketplace in the best possible way. The reality is Huawei is very strong in China in both fixed and wireless, while Ericsson is strong on wireless in North America… It depends a lot on the investment levels in those two countries.  If it’s possible to exclude those two we are pretty even in size,” he said.

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Richard Handford

Richard is the editor of Mobile World Live’s money channel and a contributor to the daily news service. He is an experienced technology and business journalist who previously worked as a freelancer for many publications over the last decade including...

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