Thursday, 27 April 2017

Ericsson announces major restructuring, impairments

By Nick Wood, Total Telecom
Tuesday 28 March 17

Swedish kit maker overhauls management; media and IT hardware divisions could be on the chopping block.

Ericsson on Tuesday kicked off a major restructuring that includes overhauling its senior management and a strategic review of its media and IT cloud hardware divisions, as it seeks to revitalise its business. The shake-up will result in a 3 billion kronor-4 billion kronor (€314.68 million-€419.63 million) hit on operating profit, plus restructuring charges of SEK2 billion, in the first quarter alone. It is the second restructuring announced by Ericsson in the last 12 months. "For some time Ericsson has been challenged on both technology and market leadership and the group strategy has not yielded expected returns," said Ericsson CEO Börje Ekholm, in a statement. Ericsson had a year to forget in 2016, as an aggressive cost-cutting programme coupled with a substantial restructuring were not enough to reverse declines in revenue and profitability…

Ericsson on Tuesday kicked off a major restructuring that includes overhauling its senior management and a strategic review of its media and IT cloud hardware divisions, as it seeks to revitalise its business.

The shake-up will result in a 3 billion kronor-4 billion kronor (€314.68 million-€419.63 million) hit on operating profit, plus restructuring charges of SEK2 billion, in the first quarter alone.

It is the second restructuring announced by Ericsson in the last 12 months.

"For some time Ericsson has been challenged on both technology and market leadership and the group strategy has not yielded expected returns," said Ericsson CEO Börje Ekholm, in a statement.

Ericsson had a year to forget in 2016, as an aggressive cost-cutting programme coupled with a substantial restructuring were not enough to reverse declines in revenue and profitability. The company's poor performance led to the resignation of CEO Hans Vestberg last July. Ekholm was named as his successor in October, and took the reins in January.

"We have listened carefully to customers around the world and made an in-depth analysis of our portfolio and performance," Ekholm said. "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," he said.

Those focus areas are Networks, OSS/BSS and IoT.

For the Networks business, Ericsson will increase investments to support 4G rollout and establish a leading position in 5G, and target its network rollout services on its own product portfolio.

OSS/BSS will fall under a newly-created Digital Services unit, which also incorporates cloud-based virtual network infrastructure and applications. Ericsson said its near-term goal is to re-establish profitability in this area, but it also plans to make selective investments given its strategic importance to its customers.

As for IoT, Ericsson is shifting its strategy from a systems integrator approach to a platform-and-solutions-led approach, which it says will better leverage its global scale and expertise.

Meanwhile, Ericsson wants to turn round its managed services business by addressing low-performing operations and contracts, and focusing on automation.

All these activities will fall under three newly-organised business areas: Networks, Digital Services, and Managed Services.

Networks will be led by Fredrik Jejdling, who is currently head of Network Services. Ulf Ewaldsson, Ericsson's group head of strategy and technology, will be in charge of Digital Services, and Managed Services will fall under the remit of Peter Laurin, who is currently in charge of Northern Europe and Central Asia.

That leaves the Media, and IT cloud infrastructure hardware businesses somewhat out in the cold.

Ericsson said it will explore strategic opportunities for the media unit, and in the meantime it will reorganise its activities into two separate units, Broadcast and Media Services, and Media Solutions, to create an a stronger operational focus.

The vendor will also launch a strategic review of its IT cloud infrastructure hardware unit, as Ericsson's focus shifts to software development for virtualised networks and OSS/BSS.

"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," Ekholm said.

The strategic reviews will result in impairments on the media and IT cloud hardware assets, leading to a SEK3 billion-SEK4 billion impact on first quarter operating income, Ericsson said.

Ericsson will also record restructuring charges of SEK6 billion-SEK8 billion in 2017, of which SEK2 billion will be recognised in Q1.

The company also warned that it has made a SEK7 billion-SEK9 billion provision in the first quarter due to negative developments related to certain large customer projects.

In addition, Ericsson has made changes to its management, and geographical setup.

The company has removed its two-tiered leadership structure, so instead of an executive leadership team and a global leadership team, it now has a single executive team.

Ericsson has also replaced its 10 regions with five market areas, which are North America; Europe and Latin America; Middle East and Africa; North East Asia; and South East Asia, Oceania and India.

Arun Bansal, who is currently in charge of network products, will become head of Europe and Latin America.

Ericsson's Middle East head Rafiah Ibrahim will lead its Middle East and Africa market area.

Chris Houghton, who already heads up the company's activities in North East Asia, will continue to do so under the new structure. Similarly Ericsson's current North America head, Rima Qureshi, will lead the North America area.

Finally, Nunzio Mirtillo, who is currently in charge of Ericsson's Mediterranean business, will look after South East Asia, Oceania, and India.

Meanwhile, Niklas Heuveldop, who currently heads up Group Sales at Ericsson, has been put in charge of the Technology and Emerging Business division.

Magnus Mandersson, as well as former CFO Jan Frykhammar, will continue in their current roles as advisors to Ekholm.

"To execute quickly and successfully on the next phase of our strategy, a new leadership team will immediately start working together. We will use the near future to solidify ways of working for the new structure, which will be more efficient and responsive to market and customer needs," Ekholm said.

Per Borgklint, Ericsson's chief innovation officer and head of Media, will step down from the leadership team, as will Jean-Philippe Poirault, head of IT and Cloud Services, and Charlotta Sund, head of Customer Group Industry and Society.

"As we form a new team, I would like to thank those leaving the executive groups. They have contributed to the leadership of Ericsson during important times of change and we appreciate their dedication and perseverance," Ekholm said.

Please enable JavaScript to view the comments powered by Disqus.

Newsletter signup

Quickly get on board and up to date with the telecoms industry