Ericsson warns of €1.5bn Q1 hit as it refocuses business

Börje Ekholm

Ericsson said that it could record up to SEK 15 billion (€1.57 billion) in extra costs in the first quarter as a result of write-downs, restructuring charges and “recent negative developments”.

Outlining its “refocused business strategy”, Ericsson said it expects to take a SEK3 billion to SEK4 billion (€315 million – €420 million) hit to its operating income this quarter as it writes down the cost of assets.

It said that roughly SEK 2 billion of restructuring charges will be felt in Q1, of an anticipated SEK 6-8 billion for full year 2017.

On top of this, negative developments related to “certain large customer projects” will see it make expected ‘provisions’ of between SEK7 billion and SEK 9 billion this quarter.

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

The company said it now aims to pursue a more focused business strategy to “revitalise technology and market leadership, improve group profitability and enable customer success.”

Ericsson said that resting profitability is “key” and will focus its portfolio on fewer areas, with increased emphasis on combining products and services to drive efficiency and better meet customer needs.

It said specifically it aimed to fully leverage the potential of 5G, IoT and the cloud and plans to increase network investments to support a continued global rollout of 4G and establish a leading position in 5G.

On the media front, Ericsson said it would “explore strategic opportunities” for this business while developing its media solutions. It will now create two separate units, Ericsson Broadcast & Media Services and Ericsson Media Solutions, to create a “stronger operational focus”.

“Video traffic today constitutes over 50% of mobile data traffic globally, and is forecast to grow to 75% by 2022. We have built a strong and competitive portfolio and we have become a world leading supplier of TV and Media products and services,” said the company.

At the same time Ericsson said it is removing its “two-tiered leadership structure” and forming a single executive team.

It will also slim down its 10 geographical region set-up to five market areas, and reduce its business functions to three main areas: business area networks; business area digital services; business area managed services.

Effective April 1, business area networks will be headed up by Fredrik Jejdling, who is currently head of business unit network services; business area digital services will be led by the current head of group function strategy and technology, Ulf Ewaldsson; and business area managed services will be headed up by Peter Laurin, who is currently head of region, northern Europe and central Asia.