Ericsson unveils turnaround plan, will book as much as $2.4B in charges

Ericsson sign (Ericsson)
Ericsson posted a loss of $181 million in the fourth quarter of 2016 as the vendor continued to struggle with slowing 4G buildouts and increased competition worldwide from rivals including China’s Huawei and Finland’s Nokia.

Ericsson said it will book between $1.8 billion and $2.4 billion in charges as it continues to restructure its business in a tough worldwide market for telecom gear.

The Swedish firm said the write-downs stem from restructuring charges and declining value of assets. Ericsson also unveiled a turnaround plan aimed at streamlining its operations by combining products and services, and upping its investments in both R&D and “services capabilities” in several core areas.   

“For some time Ericsson has been challenged on both technology and market leadership and the group strategy has not yielded expected returns,” President and CEO Börje Ekholm said in a press release. “In our strategy review we have listened carefully to customers around the world and made an in-depth analysis of our portfolio and performance. 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.”

The move marks the first major strategic announcement from Ekholm, who took the reins in January, replacing Hans Vestberg. Ericsson posted a loss of $181 million in the fourth quarter of 2016 as the vendor continued to struggle with slowing 4G buildouts and increased competition worldwide from rivals including China’s Huawei and Finland’s Nokia.

Ericsson said it will hone its focus on cloud-based virtualized network infrastructure and applications as well as management and monetization software, and will shift its IoT strategy “from a systems-integration-led approach to a platform- and solutions-led strategy” that will enable it to better leverage its global scale. The company will also ramp up its media businesses in an effort to meet ever-increasing demand for video on smartphones and other devices.

“With the actions announced today, and assuming stable market conditions, we foresee significant improvements already in 2018,” Ekholm said. “And beyond that I am convinced that Ericsson, on a sustainable basis, can at least double the 2016 Group operating margin, excluding restricting changes. But even more importantly, I think that we can deliver a return on capital employed that will create value for our shareholders.”