Ericsson to cut costs and jobs in push to cloud, software and non-carrier customers

Ericsson (NASDAQ: ERIC) plans to cut costs by $1.21 billion (9 billion Swedish kronor) by 2017 and will slash jobs as part of that effort, though the vendor did not say how many positions it will cut. The cost cuts are part of Ericsson's larger strategic transformation toward software, media and working with customers that are not telecommunications carriers.

The Swedish networking giant, which made the announcement at its Capital Markets day event, said it will incur restructuring costs of around $405 million to $540 million in addition to the roughly $270 million per year in costs management had previously planned for through 2017.

Ericsson said that it will streamline its product portfolio and R&D efforts, accelerate changes in how it delivers services, make its supply chain more efficient and cut general and administrative expenses. The company said savings will come from job cuts as well as savings in external costs.

"The key components of our profit improvement plan is to strengthen core business, build strength in targeted areas while at the same time continue to improve our cash flow," Ericsson CFO Jan Frykhammar said in a statement. He added that although Ericsson thinks its operating expenses will peak in 2014, the company thinks it can do more to increase efficiency and reduce costs.

Ericsson CEO Hans Vestberg said in a statement that 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."

As part of that effort, Ericsson is looking to branch out its customer base beyond carriers. "We believe by 2020, 20 to 25 percent of our revenues will come from other types of customers than operators," Vestberg said at the event, according to Reuters. He added that in 2013 only about 10 percent of the company's revenues came from outside of carriers, up from 5 percent in 2008.

Specifically, Ericsson has targeted new areas including cloud, IP networks, TV and media and OSS/BSS.

Ericsson said it estimates that the total network equipment market will grow at a compound annual growth rate of 2 to 4 percent from 2013 to 2017. The company expects the telecom services market to grow at a CAGR of 4 to 6 percent, and the market for support solutions is forecasted to show a CAGR of 7 to 9 percent during that period.

The vendor said that with an annual average growth of 7 percent in constant currencies from 2010 to 2013, it met its target to grow faster than the market during that period. Ericsson said it wants to continue to grow faster than the market.

Vestberg recently told FierceWirelessTech that the shift to software and services is transforming where Ericsson hires workers and what they do. "Now we have more employees in India than we have in Sweden. In North America, we have about 15,000 employees," he said. "If you are a hardware company you can have the majority of your employees in Sweden but if you are software and services, you need to be close to the customer."

For more:
- see this release
- see this WSJ article (sub. req.)
- see this Bloomberg article
- see this Reuters article

Related Articles:
Ericsson's Vestberg discusses software transformation, 5G aspirations and more
Ericsson: 50% of all mobile traffic will be video by 2020
Ericsson's Q3 sales beat expectations, but N. America is now a point of uncertainty
Ericsson maintains run of acquisitions with cloud specialist Sentilla
Ericsson to exit wireless-modem market, cut 1,000 jobs

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