In an interview with Reuters, Ulf Ewaldsson, head of digital services at the company, said Ericsson would focus its operational efforts on its “telco clients and networks exclusively for now.”
The news seemed to indicate the company was pulling back from past efforts in expanding operations into other avenues like media and utilities. Ericsson had previously stated plans to diversify operations outside of its core telecom focus.
Ericsson had not responded to an interview request by press time.
Speaking at this week’s Cisco Live event, Cisco CEO Chuck Robbins said he had spoken with Ericsson CEO Borje Ekholm about the partnership and continued to agree on the vision. However, Robbins said Cisco was not pressing its partner on the deal while it works through operational challenges.
“We will have patience with him as he reworks the company,” Robbins said.
Martin Zander, VP and head of PMO and partnering at Ericsson, said the companies are still working together and signing deals. In fact, at the end of the first quarter, the two companies reported they had signed more than 140 deals together.
Spread Too Thin
Analysts in general were positive on Ericsson’s decision to refocus its efforts on telecom, noting the company needed to regain its footing.
“Basically, Ericsson’s core competency is in telecom,” said Roger Entner, founder of Recon Analytics. “When they were going after media and utilities the reaction was somewhere between muted and puzzled. But in telecom, everyone knows Ericsson.”
Entner explained Ericsson had simply bitten off more than it could chew.
“They just spread themselves too thin,” Entner said. “They wanted to be everything to everyone, and it just didn’t quite happen.”
Daryl Schoolar, principal analyst at Ovum, said it makes sense in the near term for Ericsson to refocus its efforts.
“It’s a good move,” Schoolar said. “It makes sense to use existing partner sales channels for some of these efforts instead of spending on trying to create these new channels on their own. I don’t think they were having a lot of success doing that.”
Competitively, Entner said Ericsson has been squeezed by a resurgent Nokia in developed markets – bolstered by its recent acquisition of Alcatel-Lucent – and by Chinese vendor Huawei in emerging markets.
“They are just stuck in the middle at the moment and at a time when there is a trough between the end of 4G spending and the ramp up of 5G spending,” Entner said.
Schoolar added that Huawei was applying further pressure in that the Chinese vendor was not just winning contracts based on price, which they have been known for, but is also “winning more on technology and solutions.”
“Huawei is basically on the same level as Ericsson at this point,” Schoolar said.
Schoolar did note that Ericsson’s software focus remains, though the company continues to struggle with balancing the move toward virtualization.
“The company continues to have this giant embedded base of hardware,” Schoolar said. “The cost structure of its operations is just going to have to change.”
Ekholm was named CEO last October, before officially assuming the position earlier this year. Ekholm took over from long-time CEO Hans Vestberg, who was ousted from the company last year, and recently popped up as president of technology at Verizon.
Under Vestberg’s leadership, Ericsson in 2014 announced a cost-reduction plan with a goal of saving the company more than $1 billion in expenses by year-end. At the end of 2016, the company said it was on track with that plan.
Ekholm earlier this year boldly predicted Ericsson would regain its footing as the world’s largest telecom equipment vendor. That was followed by news the company would take a restructuring charges of between $1.8 billion and $2.4 billion this year as it tries to revamp its struggling business amid slowing sales.
At that time, Ekholm said the company had been spreading itself too thin and would focus on core businesses like networks, digital services, IT, and the cloud. The company also said it may consider selling its unprofitable media and cloud infrastructure hardware businesses.
The company last week announced plans to sell its power modules business to Flex Power. The deal includes the transfer of more than 300 people to the new owner.
Entner said that while Ericsson’s actions might appear extreme in the short term, the company could be in for a brighter future.
“They might be going a bit overboard by retrenching as much as they are and not keeping some focus outside, but they are coming out of that trough where spending on 4G has dried up and we are just now starting to see spending on 5G begin,” Entner said. “Their decision will look genius in two years, but that will be in part because all ships rise with the tide and not because of their strategy genius.”