Ericsson outlined key elements of a transformation plan to stabilize the company and improve its margins by the 2020 timeframe. The restructuring is taking longer than the company initially expected due to a weaker than expected Radio Access Network equipment market that will have significant compound effect over the coming years. The exchange rate of the Swedish krona against the USD is making the situation even more challenging.
During its Capital Markets Day event in Sweden, Ericsson executives reaffirmed that the corporate mission is “to enable the full value of connectivity for its service provider customers.”
Some group financial targets
- achieve net sales of SEK 190 – 200 b. by 2020
- achieve more than 12 % operating margin on a sustainable basis beyond 2018, excluding restructuring costs.
- achieve a gross margin of 37 – 39% and an operating margin of at least 10% for the Group in 2020, excluding restructuring charges. This target does not factor in any significant 5G sales during this time period.
Some other takeaways from the meeting
- Ericsson expects that the Radio Access Network equipment market will decline by -2% during 2018, and by -1% during 2019. In 2020, the market is expected to remain flat with no further decline.
- Beginning in Q4 2017, Ericsson will report its results in four segments: Networks, Digital Services, Managed Services and Other.
- Ericsson is expected weaker short-term performance in segment IT & Cloud, due to past contract commitments.
- The Cisco-Ericsson partnership will not reach its goal of $1 billion in sales in 2018.
- Ericsson is looking to sell its Media business.
Börje Ekholm, President and CEO, Ericsson says: “5G is not just another G. Even though we are not planning for significant 5G sales before 2020, we are convinced it will create value for our customers in their mobile broadband business, enabling them to manage very high traffic growth. But even more important, it has the potential to create new businesses and revenue streams for service providers based on use cases such as industrial applications. With the combination of products and capabilities that we have in Networks and Digital Services combined, we are well positioned to support our customers’ network evolution to 5G.”