Ericsson sees network services market outpacing gear sales

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Ericsson (NASDAQ:ERIC) said it expects to see more growth in the telecommunications network services market than in pure network gear sales in the years ahead as carriers look to add more services to their IP networks.

As part of its annual investor's day, the Swedish vendor laid out its vision for the next several years. Ericsson said it expects the overall network equipment market to grow at a compound annual growth rate of 3 to 5 percent between 2012 and 2015--the same annual growth rate Ericsson had projected for the period 2010-2013.

However, Ericsson also said that from 2012-2015 it foresees telecom services growing at a CAGR of 5 to 7 percent and support solutions growing at a CAGR of 9 to 11 percent.

"This development will naturally imply a future business mix for Ericsson with more recurring software and services revenues," CEO Hans Vestberg said in a statement. "However, hardware will always be part of the mix and a key differentiator for Ericsson."

Vestberg and CFO Jan Frykhammar have recently expounded on this idea, noting that once Ericsson sells lower-margin network equipment to carriers it can then work to upsell operators on higher-margin support, services and software upgrades. Ericsson said it expects the market for OSS/BSS software and services to grow at a CAGR of 5 to 7 percent from 2012-2015; Ericsson bought OSS/BSS vendor Telcordia for $1.15 billion in 2011.

Ericsson noted that is currently rolling out its network gear in many "coverage" deployments, which carry lower margins. In the future though Ericsson expects to focus on "capacity" deployments, where it can sell more services to help operators manage network traffic.

For more:
- see this release
- see this Bloomberg article
- see this MarketWatch article
- see this Reuters article

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