Swedish equipment vendor Ericsson is facing more challenges. The company announced today that it will have restructuring charges of between $1.8 billion and $2.4 billion this year as it tries to revamp its struggling business amid slowing sales of 4G equipment and increased competition from Chinese vendors like Huawei and ZTE.
CEO Borje Ekholm, who joined the company in January, said that Ericsson had been spreading itself too thinly and will focus on core businesses like the networks, digital services, IT, and the cloud. The company also said it may consider selling its media and cloud infrastructure hardware businesses that have been unprofitable.
Ericsson said it will write down tangible assets by $908 million to $1.2 billion. And it will also take charges from $794 million and $1.02 billion on some of its large projects. This is on top of the $862 million in charges Ericsson took last year.
In 2014 Ericsson announced a cost-reduction plan with a goal of saving the company more than $1.05 billion in expenses by year-end. At the end of 2016, the company said it was on track with that plan.
Investing in 5G
Ericsson said today that it will be investing in its network products to ensure leadership in the 5G area and will also be reviewing its digital services product portfolio. Ekholm added that Ericsson will be increasing its investment in cloud-based virtualization infrastructure because it is “strategically important” to customers and the “future of network architecture.”
The company also will be putting more emphasis on the Internet of Things (IoT). Ekholm noted that the company’s IoT business is currently focused on services but will shift to be more focused on platforms and solutions. He added that the company will be developing products in the IoT area.
In the managed services area, which is currently not profitable, Ekholm said Ericsson will be working on automation and reviewing current contracts with service providers. In 2016, Ericsson said it was renegotiating its managed services deal with Sprint that at one time was valued at $5 billion over a seven-year-period. That contract was up for renewal in September, and Ericsson said that the deal was “reduced in scope.”
As part of this turnaround strategy, Ekholm said the company will also retool its management team, eliminating four members including Per Borgklint, head of the media business unit; Anders Lindblad, head of the IT and cloud business unit; Jean-Philippe Poirault, head of the IT solutions and services business: and Charlotta Sund, president of the Northern Europe & Central Asia region.
The new management structure will have three business areas: Networks, Digital Services, and Managed Services. And there will be two separate units for the media business: Broadcast and Media services and Ericsson Media solutions. There will be five market areas, down from 10.
Interestingly, Ulf Ewaldsson, formerly the CTO, will now be head of the Digital Services Business. Fredrik Jeidling, who previously was head of Network Services will lead the Networks Business; Managed Services will be headed by Peter Laurin.
Rima Quereshi, who is responsible for the Ericsson Cisco business partnership, will continue in that role and head up the North America Region. Arun Bansal, who previously was in charge of the Network Products Business will now be in charge of the Europe and Latin America Market; Rafiah Ibrahim will be in charge of the Middle East and Africa Region; Chris Houghton will be in charge of the North East Asia Market and Nunizo Mirtillo will head up South East Asia, Oceania and India.