Ericsson is facing costs of up to SEK15 billion ($1.7 billion) in Q1 after unveiling a strategic business revamp designed to lead the struggling vendor back to long-term growth.
New CEO and president Borje Ekholm (pictured) took the wraps off the new business strategy in an announcement today. The company hopes the approach will “revitalise technology and market leadership, improve group profitability and enable customer success”.
It said it will cut costs across the business, while focusing on fewer areas as it looks to take the fight to rivals Huawei and Nokia.
Ericsson said restoring profitability was key after being hit with consecutive quarters of losses, and it will start by streamlining its portfolio of services along with introducing a leaner top management structure.
This sees the company remove a layer from top management, and reduce its current set up of ten geographical locations into five market areas. As part of the plan, it will “explore” options for its media business, and refocus its managed services division.
Ekholm said the strategic focus had been developed after consulting customers around the world in an analysis of the company’s performance.
“For some time Ericsson has been challenged on both technology and market leadership and the group strategy has not yielded expected returns,” said Ekholm. “To enable us to immediately take action and move with the 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.”
Write downs, restructuring costs
As part of the plan, the company warned on some short term financial implications, with a planned write down of assets in Q1 resulting in an estimated impact of SEK3 billion to SEK4 billion to operating income.
It also estimated restructuring charges for 2017 will amount to approximately SEK6 billion to SEK8 billion, with SEK2 billion booked in Q1.
First quarter earnings will also be cut by SEK7 billion to SEK9 billion because of “recent negative developments related to certain large customer projects,” added the company.
Ekholm said he foresees “significant improvements already in 2018” as a result of the revamped strategy.
Refocus and explore
Ericsson said it would accelerate investments in its networks business going forward and “establish a leading position in 5G”.
It also plans to address low performing operations and contracts in a bid to turn around its managed services business, with a bigger emphasis on automation.
On its media business, the company said it would create two separate units, Ericsson Broadcast & Media Services and Ericsson Media Solutions, “to create a stronger operational focus”.
It also reiterated its focus on digital services, IoT and opportunities for its IT Cloud Infrastructure Hardware Business.