Ericsson CFO says strategic changes are response to ‘challenging’ environment

Swedish networking giant Ericsson accompanied its Q1 2016 numbers with a new company structure and a reshuffle of the executive leadership team.

The top-line numbers were pretty much flat year-on-year, as you can see from the table below, with a strong quarter for IPR and licensing revenue offset by a weak macroeconomic environment in emerging markets. Telecoms.com spoke to Ericsson CFO Jan Frykhammar to get the inside view.

“Our quarter had its challenges and strengths as always,” he said. “We have a weak macroeconomic environment in some parts of the world, mainly emerging markets. While this is nothing strange after many quarters, even years, of challenges on the macro side, driven by things like oil price and other factors, it’s tough for many of our customers to keep up their investment levels. And then we have lower mobile broadband activity in Europe at the back end of this quarter, including one big customer project that has been completed.

“So we focus on doing everything we can to take care of the things we can control. We continue to deliver on the cost and efficiency programme and we are adding additional measures related to lower volumes. So we’re adapting the company to a challenging environment.”

The restructure essentially splits the company more clearly into its core, legacy, networks business and the areas it has been openly targeting for growth, as follows:

As you can see both the legacy networks and higher growth cloud segments are sub-divided into products and services, while media seems to be semi-autonomous. The industry and society group is more of a formal sales channel to make Ericson better at targeting industries outside of its core markets, especially utilities, transport and public safety.

“The purpose of this new set-up is to get enough focus, dedicated people and accountability to drive both sales in growth areas and at the same time make sure we remain focused on our core customers,” said Frykhammar. “This business unit structure will also help the market to better follow our progress in these areas. We’ve been talking a lot about targeted areas and now the investment buckets will fall wholly into these new business units.”

The changes to the executive leadership team seem to amount to a refresh, rather than a major overhaul. “The last time we had a major global reorganisation of the company was in 2010 and our industry has undergone a lot of change in that time,” said Frykhammar. “We think this is a good opportunity to bring some new people into the leadership team.”

Frykhammar was keen to stress the ongoing challenges in the broader macroeconomic environment and that Ericsson is acutely aware of them. For a while Ericsson’s quarterlies have been about trying to create a narrative around an essentially flat growth story and the company will be hoping to be able to focus attention on solid growth numbers in the from the cloud and media business when it starts reporting along those lines in Q1 2017.