Ericsson reported disappointing third-quarter fiscal results that showed the vendor may be a market heavyweight but has a long way to go in order to solidify its operational stance. The earnings release was also its first following a broad corporate restructuring that marked what its leadership claimed was the next phase in the vendor’s long-simmering turnaround plans.

The restructuring resulted in Ericsson forming two big operating pillars: its Business Area Enterprise Wireless Solutions division focused on the enterprise market and its Business Area Cloud Software operations focused on its 5G core and software business.

Ericsson’s management lauded the former while the latter was saddled with failing to meet expectations.

Vonage, Cradlepoint Drive Enterprise Push

Ericsson CEO Börje Ekholm touted the vendor’s recently closed Vonage acquisition as solidifying its push into the lucrative enterprise market.

“We expect the Vonage acquisition to be highly accretive, and it complements our enterprise wireless solution offerings with Cradlepoint and dedicated networks,” Ekholm said, according to a transcript of the earnings call. “Overall, we expect our enterprise offering to have a growth potential north of 20% per year.”

Analysts were lukewarm on the deal, noting the $6.2 billion acquisition was a steep price to pay for Ericsson to push into the enterprise space. Ericsson also admitted that the space is garnering increased attention from larger and more established rivals.

“Of course, this space is going to be having a lot of competition coming in also from hyperscalers. And we see that our solutions will be really run on hyperscalers as well. So I think we should not only think of them as competitors, they're going to be partners for us as well in order to reach the market,” Ekholm said.

Ericsson Results: Cloud Business Continues to Struggle

While Ericsson is betting on a robust reception in the enterprise space, its already established network and cloud operations continue to languish.

The vendor’s network business showed strong growth in North America where carriers have aggressively rolled out 5G network upgrades. Ericsson CFO Carl Mellander said he expects the North American RAN market to grow 12% this year.

However, that growth is expected to subside toward the end of this year and into 2023, though Ericsson expects other regions to make up for some of that decline.

“We see revenues from footprint wins in other geographies accelerating during the fourth quarter and … we expect that this will compensate for potentially lower sales in North America in the fourth quarter,” Mellander said.

Ekholm added that while initial 5G deployments remain strong, more advanced 5G technology was still lagging expectations.

“But where we now have challenges … is … on our 5G core, and that has taken a bit longer to get to market than we expected a year ago,” he said. “And it has carried a lot more system integration costs and … call it service costs than we anticipated a year ago. But we have also a lot of geopolitical developments that you are well familiar with and that also impacts the business volume in Cloud Software and Services, very detrimentally so and that has also hurt the business this year.”

Dell’Oro Group recently reported that Ericsson generated 39% of market revenue outside of China through the first half of the year, putting it ahead of Nokia and Huawei.

The cloud side of that operation continues to be the main drag.

Mellander acknowledged that Ericsson has “underperformed in this area for a long time,” and “we’re not happy at this level.”

“We need to fix this. It should be a profitable business. With our market position and the technology we offer, this has all the potential to be profitable,” Mellander said.

U.S. Corruption Investigation Continues

Ericsson did not provide any substantial update on the ongoing U.S. Department of Justice and Securities and Exchange Commission investigations into corruption charges against the vendor.

“We continue to engage with the DOJ and the SEC in relation to the 2019 investigation report and the breach notices, and we're fully committed to cooperating with the government authorities,” Ekholm said. “We're also continuing to work to strengthen our culture as well as ethics and compliance program.”

The comments echoed nearly verbatim past statements from Ericsson’s management on the investigations. Ekholm had previously stated that the investigations are likely to lead to at least financial repercussions.

“What I can say now is that it’s our assessment that the resolution will likely result in monetary and other measures,” Ekholm said during the carrier’s Q1 earnings call. “However, the magnitude of these cannot, at this time, be reliably estimated. As this process is ongoing, we remain limited in what we can say about the historical events covered in the Iraq investigation and related matters.”