LONDON/STOCKHOLM: Ericsson has ditched its goal of winning more clients beyond the telecoms industry to refocus on selling networks to mobile phone companies in a move to cut costs and halt a dramatic fall in its share price.
The Swedish firm’s clients in its core business include Vodafone and Verizon but profits have plunged due to competition from Nokia and China’s Huawei and as telecoms companies make savings. Its shares have fallen 30 per cent in two years.
Ericsson said in 2014 it would diversify so that by 2020 up to 25 per cent of revenue would come from industries beyond telecoms, such as media, utilities and transport, from an estimated 10 per cent in 2013.
But the plan has not worked and the company will drop the target as new chief executive Borje Ekholm repositions to focus on the core business of mobile networks. “We will focus on telco clients and networks exclusively for now,” Ericsson’s new head of Digital Services Ulf Ewaldsson said in a recent interview. The U-turn comes at a challenging time for Ekholm, who after only five months in the top job is being pressed by activist investor Cevian Capital, which has a $1 billion stake in the company, to make faster changes.
Ekholm unveiled a cost-cutting plan in March and announced up to $1.7 billion in provisions, writedowns and restructuring costs. He said this would include exploring options for its loss-making media arm and turning its managed services business around. Investors welcomed the greater focus after years of disappointing investments from Ericsson, but they worry the new plan will not generate growth. Moody’s cut the company’s credit rating to junk in May, partly due to worries that the cost-cutting could hamper innovation.
Increasing dependence on telecoms operators could be risky as they are struggling to grow revenue due to fierce competition and so are unwilling to spend more on networks even as they prepare for 5G fifth-generation wireless broadband technology. — Reuters
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