Eric­s­son to re­fo­cus on its core busi­ness in bid to halt slide in for­tunes

The Star Early Edition - - INTERNATIONAL - So­phie Sas­sard and Olof Swahn­berg

ERIC­S­SON has ditched its goal of win­ning more clients be­yond the tele­coms in­dus­try to re­fo­cus on sell­ing net­works to cell­phone 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 be­cause of com­pe­ti­tion from Nokia and China’s Huawei, and as tele­coms com­pa­nies make sav­ings. Its shares have fallen 30 per­cent in two years.

Eric­s­son said in 2014 it would di­ver­sify so by 2020 up to 25 per­cent of rev­enue would come from in­dus­tries be­yond tele­coms, such as me­dia, util­i­ties and trans­port, from an es­ti­mated 10 per­cent in 2013.

But the plan has not worked and the com­pany will drop the tar­get as new chief ex­ec­u­tive Börje 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 (R12.88bn) stake in the com­pany, to make faster changes.

Ekholm un­veiled a cost-cut­ting plan in March and an­nounced up to $1.7bn in pro­vi­sions, write downs 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 that the new plan will not gen­er­ate growth. Moody’s cut the com­pany’s credit rat­ing to junk last month, 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 be­cause of fierce com­pe­ti­tion and are un­will­ing to spend more on net­works even as they pre­pare for 5G (fifth-gen­er­a­tion) wire­less broad­band tech­nol­ogy.

Eric­s­son has to prove it can re­main rel­e­vant in an in­dus­try that has gone from more than 10 ma­jor play­ers to three in 20 years. In­vestors ques­tion whether it can do this un­der Ekholm, who has been on the board for a decade while Eric­s­son lost ground.

Eric­s­son sees op­por­tu­ni­ties to sell prod­ucts to tele­coms clients which will need to up­grade their net­works to ad­dress a greater flow of data en­abled by 5G.

It will also build ad­di­tional ca­pac­ity to con­nect ob­jects around the world when the In­ter­net of Things be­comes re­al­ity.

But Bengt Nord­strom, head of con­sul­tancy firm North­stream, which ad­vises tele­coms op­er­a­tors and vendors, said 5G will only help sus­tain ex­ist­ing rev­enues. Eric­s­son is also bet­ting on get­ting a boost from au­to­ma­tion and ar­ti­fi­cial in­tel­li­gence. – Reuters


Eric­s­son chief ex­ec­u­tive Börje Ekholm has been on the com­pany’s board for the decade in which it lost ground.

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