Sunday, November 16, 2014

Ericsson Forecasts 3-5% Growth, Announces Cost Cutting

Ericsson is projecting the total addressable market it serves to grow at a CAGR of 3-5% from 2013-2017, with its own target at or above these levels. Ericsson's growth will be supported by a CAGR of approximately 10% in 2013-2017 in targeted areas.

At its Capital Markets Day last week in Stockholm, Ericsson said it aims to reduce its operating costs by SEK 9 billion, with full effect during 2017, with a restructuring cost of SEK 3-4 billion.  To cut costs, Ericsson is concentrating on five key areas: portfolio streamlining and ways of working in R&D; structural enhancements in IS/IT; accelerated Service Delivery transformation; supply chain efficiencies; as well as structural efficiency gains in G&A. Savings will include both headcount reductions as well as savings in external costs.

"We are taking the next step in our transformation to become a leading ICT player. The telecom, IT and media industries are converging and we are confident in our choice of strategy to play a key role in this new world. We will continue to build on our combined strength of technology and services leadership to stay relevant to our customers in a transforming industry," stated Hans Vestberg, President and CEO.

Some highlights:

  • Ericsson believes we are at the inflection point toward to a Network Society.  By 2020, the company is forecasting 9.5 billion mobile subscriptions and 8 billion mobile broadband subscriptions. This will drive an 8X increase in data traffic.
  • Ericsson estimates that the total network equipment market during the years 2013-2017 will show a CAGR of 2-4%; the telecom services market is estimated to show a CAGR of 4-6%; and the market for support solutions is forecasted to show a CAGR of 7-9% in the same period.
  • The dismantling of previous joint ventures is now complete (ST-Ericsson and Sony Ericsson)
  • North America has been the company's fastest growing region from 2010-2013 and constituted 28% of sales for 2013. Overall EMEA sales were 39% of total sales for 2013.
  • Mobile broadband growth continues to be offset by declines in CDMA and circuit switched voice.
  • Network rollout (NRO) has been a low-margin to negative operating margin business for the past few years
  • Ericsson is seeing significant revenue from its IPR licensing deal with Samsung last years.
  • Ericsson now has 115,900 active employees.
  • Ericsson support networks that connect more than 2.5 billion subscribers. 

Presentation materials are on the Investor Relations section of the Ericsson website.


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