Ericsson has taken the wraps off a new restructuring effort to restore growth that is expected to cost between $680 million and $911 million (6 billion to 8 billion Swedish Krona).
The company said the plan will see it narrow its portfolio to fewer areas and streamline operations for maximum effectiveness. As part of the strategy, Ericsson will boost its focus on solutions, combining products and services in an effort to further boost efficiency and meet customer needs. Though the company’s organizational structure will be simplified, Ericsson said it wants to accelerate investments in R&D and services capabilities in core areas to stay ahead of the technology curve.
“For some time Ericsson has been challenged on both technology and market leadership and the group strategy has not yielded expected returns. In our strategy review we have listened carefully to customers around the world and made an in-depth analysis of our portfolio and performance,” Ericsson CEO Börje Ekholm commented. “To enable us to immediately take action and move with 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.”
New portfolio focus
Ericsson said its revamped core portfolio will include a boost of investments in networks to support continued 4G rollouts and 5G leadership. In its network rollout business in particular, the company is looking to refocus on its own portfolio and optimize offerings to client needs. Ericsson will also shift its Internet of Things approach to be more platform- and solutions-led, and will realign its managed services business with a strategy that emphasized automation.
Interestingly, but perhaps unsurprisingly, Ericsson indicated is also turning its attention toward video by splitting its media business into two separate units – Ericsson Broadcast and Media Services and Ericsson Media Solutions – to strengthen operational focus in each of those areas and develop both managed services and technology solutions. The company said it will also explore “strategic opportunities” for its media businesses.
The company is also creating a digital services business area to address cloud-based virtual network infrastructure and applications, management and monetization software, and related services capabilities. That last bit – the increased focus on software development and virtualized networks – means Ericsson will also be looking at “strategic opportunities” for its IT cloud infrastructure hardware business.
Further cost-cutting measures with targets above current levels will also be explored, the company reported. And finally, a new, single-level leadership team has been installed across the company. They will collaborate across five market areas (reduced from 10 regions) and three business areas starting April 1 to be more responsive to customer needs.
With such changes in place, Ekholm said he is “confident that we will create the most intelligent and efficient networks, deliver the most competitive solutions, and constantly innovate to enable our customers to succeed in a fully connected world.” Assuming stable market conditions, Ekholm said the company foresees “significant improvements” by 2018 under the plan.
What it’ll all cost
But it won’t come cheap.
In the short term, Ericsson said it expects to see operating income impacts of 3 billion to 4 billion Krona in the Media and IT and Cloud segments in the first quarter, as well as restructuring costs of 2 billion Krona in the same period. Restructuring is anticipated to add up to between 6 billion and 8 billion Krona over the course of the full year 2017, the company said.
Filed Under: Infrastructure