March 29, 2017
will pursue a more focused business strategy to revitalize technology
and market leadership, improve group profitability and enable customer
success. The overall strategy is to enable service providers to expand
their business across industries and into new profit pools. We will
drive the development of market-leading solutions, fully leveraging the
potential of 5G, IoT and cloud.
Restoring profitability is key and we will start by focusing the
portfolio to fewer areas and securing effectiveness and efficiency in
We will increase emphasis on solutions across the company, combining
products and services, to drive efficiency and better meet customer
needs and requirements. This will also be reflected in a simplified
organization. In parallel we will also accelerate investments both in
R&D and services capabilities in selected core areas to ensure that we
can offer our customers leading solutions.
Börje Ekholm, Ericsson President and CEO, says: "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. 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
We will take the following steps to focus and strengthen the core
Accelerate and increase investments in key areas in Networks to support
a continued global rollout of 4G and establishing a leading position in
Target the Network Rollout business on Ericsson's own networks
portfolio. Ambition is to optimize the end-to-end offering to address
our customers' needs. The work to improve profitability in this area
will be further sharpened.
For the newly created Digital Services Business Area, including cloud
based virtualized network infrastructure and applications, management
and monetization software (OSS/BSS) and related services capabilities,
the near term focus is on re-establishing profitability. As this area is
strategically important to our customers going forward, we will also
selectively increase our investments to enable Ericsson to be the
partner of choice for our customers on their journey to become digital
Shift the IoT strategy from a systems-integration-led approach to a
platform- and solutions-led strategy to better leverage our global scale
and industry expertise.
Refocus Managed Services strategy with emphasis on automation, fully
leveraging our global scale and OSS capabilities, to provide high-tech
services and cost efficient operations. Full attention on turning
business around from a negative result in 2016, addressing low-
performing operations and contracts.
Explore strategic opportunities for the Media business while continuing
to develop our media solutions, to enable the business to scale and
succeed in the evolving media landscape. Our media business consists of
two parts, managed services and technology solutions. We will now create
two separate units, Ericsson Broadcast & Media Services and Ericsson
Media Solutions, to create a stronger operational focus. Video traffic
today constitutes over 50% of mobile data traffic globally, and is
forecast to grow to 75% by 2022. We have built a strong and competitive
portfolio and we have become a world leading supplier of TV & Media
products and services.
As a consequence of our increased focus on software technology
development within virtualized core networks and management and
monetization software (OSS/BSS) we will explore strategic opportunities
for the IT Cloud Infrastructure hardware business.
Ekholm continues: "With these changes I am 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."
Profitability and efficiency
In addition to the actions above, the company will continue our work to
rationalize legacy portfolio and drive company-wide efficiency measures.
Combined, these actions will establish a new and stronger earnings level
Ekholm says: "While we will continue our work to take out cost at high
pace with targets surpassing current ambitions, we will not guide on
cost levels going forward as it is an isolated part of the profit and
loss statement. With the actions announced today, and assuming stable
market conditions, we foresee significant improvements already in 2018.
And beyond that I am convinced that Ericsson, on a sustainable basis,
can at least double the 2016 Group operating margin, excluding
restructuring charges. But even more importantly, I think that we can
deliver a return on capital employed that will create value for our
Short term financial implications
As a consequence of the change in Group strategy, certain intangible
assets including capitalized development within current segments Media
and IT & Cloud will be impaired in Q1. Ericsson estimates the operating
income impact of this in Q1 to SEK 3-4 b. with no impact on cash flow.
As a result of a planned higher pace in cost reductions, with current
visibility we estimate restructuring charges for 2017 to amount to
approximately SEK 6-8 b., compared to previous estimate of SEK 3 b, of
which approximately SEK 2 b. in Q1.
Provisions related to events in Q1, 2017
Separately, provisions of an estimated SEK 7-9 b. will be required in
Q1, triggered by recent negative developments related to certain large
New company structure
The company also announces an organizational structure to support the
long-term strategy. A set of changes will be made to simplify the
organization to increase efficiency and speed up time to market and
addition, actions are taken to increase accountability and empowerment
throughout the organization. Today the company has significant common
costs that are allocated. These resources will gradually be moved out to
business and market areas.
The new organization and P&L structure is built on a simplified model,
combining products and services where relevant into solutions to
increase internal efficiency and better reflect customer needs and
requirements. The new structure will have three Business Areas,
Networks, Digital Services and Managed Services as well as two separate
units for the Media business, Ericsson Broadcast & Media services and
Ericsson Media Solutions. The current 10 regions are reduced to five
Market Areas, all represented in the Executive Team. The new Market Area
set up will align better to our global customers and reduce the number
of interfaces for them.
The new Executive Team will be effective April 1, 2017.