Ericsson finally has a plan – flog media and cloud hardware units, double-down on services and IoT

Having spent the first quarter of the year reviewing the state of his company, Ericsson CEO Börje Ekholm has now unveiled his grand plan to turn the super-tanker around.

The Vestberg era was defined by a drive to diversify away from the core network hardware business, which has been in slow decline for Ericsson. The areas of diversification were generally illustrated in one of Vestberg’s favourite slides below.

Ekholm has decided Ericsson got carried away with its efforts to diversify and spread itself too thin. Not only have a lot of those new areas of business failed to deliver the required growth or profitability after several years of trying, they also have the potential to distract the rest of Ericsson such that it stops even doing its core networks stuff well.

The sensible solution, and generally the most common one when corporations reach the kind of moment of truth Ericsson has, is to jettison the stuff that’s furthest away from your core competency, reinvest in what’s left, and review new business priorities. In the case of Ericsson this looks like a disposal of the media and cloud hardware business, a refocus on networking services and betting on IoT as the main source of long-term growth.

“For some time Ericsson has been challenged on both technology and market leadership and the group strategy has not yielded expected returns,” said Ekholm. “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 on.”

Ekholm didn’t specifically say he wanted to offload the media and cloud hardware businesses, but he did say Ericsson was ‘exploring strategy opportunities’ for those units, which is generally accepted as a euphemism for flogging them. Furthermore the recent change in Ericsson’s reporting structure always looked designed to facilitate this process and anyone connected to those units has been removed from the executive leadership team.

Here’s the full list of the new executive team:

President and CEO – Börje Ekholm

Business Area Networks – Fredrik Jejdling, SVP, currently head of Business Unit Network Services

Business Area Managed Services – Peter Laurin, SVP, currently head of Region Northern Europe and Central Asia

Business Area Digital Services – Ulf Ewaldsson, SVP, currently head of Group Function Strategy & Technology

Market Area North America – Rima Qureshi, SVP, currently head of Region North America

Market Area Europe & Latin America – Arun Bansal, SVP, currently head of Business Unit Network Products

Market Area Middle East & Africa – Rafiah Ibrahim, SVP, currently head of Region Middle East

Market Area North East Asia – Chris Houghton, SVP, currently head of Region North East Asia

South East Asia, Oceania & India – Nunzio Mirtillo, SVP, currently head of Region Mediterranean

Technology & Emerging Business – Niklas Heuveldop, SVP, currently head of Group Function Sales

Finance & Common Functions – Carl Mellander, SVP, currently acting Head of Group Function Finance & Common Functions

Human Resources – MajBritt Arfert, SVP, currently acting Head of Group Function Human Resources

Marketing & Communications – Helena Norrman, SVP, currently in same role

Sustainability & Corporate Responsibility – Elaine Weidman Grunewald, SVP, currently in same role

Legal Affairs – Nina Macpherson, SVP, currently in same role

Advisor to the CEO – Jan Frykhammar, EVP currently in same role

Advisor to the CEO – Magnus Mandersson, EVP, currently in same role

The following execs are leaving the leadership team:

Per Borgklint – Chief Innovation Officer and Head of Business Unit Media

Anders Lindblad – Head of Business Unit IT & Cloud Products

Jean-Philippe Poirault – Head of Business Unit IT & Cloud Services

Charlotta Sund – Head of Customer Group Industry & Society

Sund’s demotion is also intriguing as industry and society was positioned at Ericsson’s big IoT play a couple of years ago. That apparently hasn’t gone according to plan and, for all the talk about skating to where the IoT puck is going to be, Ekholm has decided not to maintain a distinct IoT business unit. This is probably sensible as IoT is still so ill-defined and diverse it’s probably better to ask all the other units to keep an eye out for IoT opportunities.

All this reshuffling will incur yet more restructuring costs for Ericsson. It’s going to write down the value of assets, much of which will be from the Media and IT & Cloud reporting segments, we have been advised, to the tune of SEK 3-4 billion. There will be restructuring charges of SEK 6-8 billion and separately there will be SEK 7-9 billion of provisions related to certain large customer projects that Ericsson didn’t want to detail.

“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,” said Ekholm.

“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 shareholders.”

You can watch Ekholm summarising all this stuff in the video below, and below that a couple of slides from Ericsson’s presentation on the new plan. Essentially Ekholm seems to be drawing a line under the Vestberg era, deciding not to throw good money after bad and shrinking the company to a level where profitability is no longer a concern, which is sensible.

What is less clear from this new plan is where growth is going to come from. Not media and cloud hardware, that’s for sure, but services and IoT are very broad target areas, with a hell of a lot of competition. Intriguingly there was little mention of 5G. This looks like a solid first step but over the course of this year we will need to hear more about how Ericsson is going to exploit the networks services and IoT opportunities if we’re to start getting optimistic about its long term prospects.