Ericsson devises new structure post Q1 results
Ericsson announces strengthening strategy as year-on-year expectations fell short
Ericsson has announced a series of organisational and structural changes to strengthen strategy execution after the Q1 results fell short on expectations.
Sales as reported decreased by 2% year-on-year (YoY).
Commenting on the results, Hans Vestberg, president and CEO of Ericsson said: "Sales, adjusted for comparable units and currency, were stable YoY. Growth in North America, Mainland China and South East Asia was offset by weak development in Europe and some emerging markets. Profitability increased YoY, driven by improvements in Networks while global services had a challenging quarter."
The main reasons for declining gross margin were lower margins in global services, a higher share of mobile broadband coverage projects in parts of Asia and lower software sales in IP and core networks. Operating margin increased YoY to 6.7% (4.0%), driven by reduced operating expenses and a positive currency effect.
The company has announced structural changes to "create a leaner, more fit for purpose, organisation to cater to the needs of different customer segments and to faster capture market opportunities".
The new structure will have five business units and one dedicated customer group for industry and society, in line with the company focus on core business, targeted growth areas and cost and efficiency.
Vestberg added: "We are not satisfied with our overall growth and profitability development over the past years and I am convinced this will make us more competitive and enable us to grow both our company and our earnings."
In addition, Ericsson has also announced appointments to the executive leadership team. The new organisation will be effective as of July 1, 2016. As of Q1, 2017, financial reporting will be made according to the new structure.
For the year 2016, Ericsson will be focussed primarily on three areas. The first focus area is to capture business opportunities in 4G and extend leadership in 5G. The second focus area is to improve profitability in the targeted growth areas like software sales and recurring business. Finally the third focus area is to improve cost and efficiency in order to stay competitive across the entire business.
"We are confident in our ability to achieve net annual savings of SEK 9 b during 2017 compared with 2014," said Vestberg.