Ericsson sells loss-making IoT division

Swedish kit maker Ericsson has given up on trying to turn a profit from its IoT business, and will let US-based Aeris have a go instead.

The vendor on Wednesday agreed to sell to Aeris its IoT Accelerator division, which offers a range of cellular IoT connectivity solutions to enterprises. The deal also includes Ericsson’s Connected Vehicle Cloud (CVC) unit – which offers hosting services for carmakers’ fleet management, telematics, navigation and infotainment applications.

The agreement will see Aeris take on not just the technology and customers, but also all the staff in Ericsson’s IoT business. Ericsson expects to record in Q4 a one-off charge of SEK1.1 billion ($106 million) related to the transaction, which is expected to close in Q1 next year. Financial terms were not disclosed.

“Building the best technology to support the success of our customers and drive innovation in the IoT space have always been at the forefront for Aeris,” said Marc Jones, CEO of Aeris, in a statement. “Our intelligent, software defined IoT network and Ericsson’s leading connectivity management platform will provide the leading IoT technology stack in the industry. We look forward to bringing these new, transformational IoT solutions and Ericsson’s IoT Accelerator and Connected Vehicle Cloud products to our customers.”

Despite boasting 9,000 enterprise customers and 95 million connected devices – including 22 million eSIM connections – Ericsson IoT Accelerator cannot seem to wash its face. The vendor said it is the key driver of losses at Business Area Technologies and New Businesses, which is part of its Enterprise segment. Ericsson said IoT Accelerator is expected to turn over $77 million this year, and that its sale will remove around $24 million of quarterly losses from the balance sheet.

One generally-accepted principle of IoT is that the biggest single chunk of revenue isn’t derived from connectivity but from the value that is added on top of it in the form of management platforms, applications and services. IoT Accelerator generally focuses on connectivity solutions – giving customers the means to onboard and manage devices on CSP networks all over the world. While that adds value on top of basic connectivity, it’s still primarily a volume, rather than a value play, and doesn’t tap into the more profitable end of the IoT supply chain, like platforms, applications, systems integration, consultancy services, and so-on.

However, IoT Accelerator looks like a good fit for California-based Aeris. It offers global IoT network coverage thanks to partnerships with major telcos including AT&T, Softbank, T-Mobile and Vodafone. Beyond connectivity, it also offers a range of IoT platforms that cover device, connectivity, application and service management. It sells its solutions either directly or through channel partners – including CSPs – to enterprises in various sectors, such as transport, healthcare, energy and utilities, among others.

“Aeris has been successful in extending its IoT solution offering beyond connectivity and has the right focus, assets, and capabilities to realise the full value creation potential of Ericsson’s IoT business and its strong market presence,” said Åsa Tamsons, head of Business Area Technologies and New Businesses at Ericsson, in a statement.

“Despite significant investments to address the fragmentation of the IoT market, Ericsson has only tapped into a limited part of the value chain, limiting the returns of such investments,” she added.

Indeed, but with Aeris offering complementary solutions that go higher up the value chain, it probably stands a better chance of taking on the staff and customers from Ericsson and still turning a profit.

“The combined business will offer an unparalleled IoT platform for enterprises and new revenue streams for communication service providers, ultimately benefiting Ericsson’s customers. Aeris is a good home for our IoT business,” Tamsons said.

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