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Ericsson skates on thin ice as it posts lower than expected results

Ericsson CEO Borje Ekholm

CEO Borje Ekholm © Ericsson

  • Full year sales down 10 per cent and income down 86 per cent
  • Network sales fell 12 per cent in the year: stability now the goal
  • Ericsson's new CEO blames Apple for fall in profitability
  • And is ice hockey really the best metaphor for Ericsson’s predicament?

Not a good morning for Ericsson, whose new CEO had to put his name to a set of fourth quarter and full-year financial figures that disappointed the markets. Sales were down 11.4 per cent year-on-year for the quarter and down 9.8 per cent for the full year – although it could have been worse if it wasn’t for favourable exchange rates. Net income plummeted 123 per cent in Q4 and by 86 per cent for the year.

“The negative industry trends remained in the fourth quarter,” explained Börje Ekholm, President and CEO of Ericsson. “However, sales were positively impacted by favourable currency exchange rates combined with hardware deliveries, previously planned for Q1 2017.”

What this means for 2017’s results is anyone’s guess – pulling sales forward into 2016 helped stem the decline slightly, but what’s going to happen this coming year? There will be a price to be paid somewhere along the line. Ekholm also had the brass neck to blame Apple for its woes:

“Profitability declined year-on-year following lower IPR licensing revenues mainly due to last year's agreement with Apple as well as increased restructuring charges,” he said.

When will these legacy vendors come to terms that they all lost out to Apple, when Apple was practically down and out. They were once leaders in mobile and emerging smartphones, but played their hands very badly and lost. Let’s hope they don’t play the virtualisation game as badly, as there’ll be no coming back from that.

Meanwhile, Ericsson slashed its 2016 shareholder dividend by 73 per cent as it explained that the industry is “going through a period of rapid change”. As a consequence, it says it is reviewing its priorities in order to set the future direction of the company. A process that seems to drag on and on.

“In the near term, stability will be key to establishing a strong base for future growth,” said Ekholm. “This means prioritising profitability over growth, but also to diligently continue to work on efficiency and effectiveness across all operations. This can and will ensure that we remain at the forefront of technological development.”

Segment sales

Ericsson’s core strengths lie in network infrastructure technology, with its Networks division accounting for 49 per cent of sales, although Global Services is almost an equal contributor with 46 per cent.

Net sales in Networks were down by 12 per cent during the year, mainly ascribed to lower sales of mobile broadband, reduced sales of core networks and lower IPR licensing revenues. Core networks sales declined due to lower sales of legacy products that were not offset by growth of its new portfolio. Ericsson cited a weak macroeconomic environment in a number of markets for the lack of mobile broadband investments. Ericsson Radio System (ERS) represented almost 15 per cent of total deliveries of radio units for the year and the company says it is on track to reaching the target for 2017 of approximately 50 per cent of total deliveries.

Net sales for Global Services decreased by 6 per cent in 2016 from 2015. It said Professional Services sales (which account for 76 per cent of the division’s sales) declined due to lower managed services activities in North America where a contract has been renewed with reduced scope. Network Rollout sales declined due to lower mobile broadband demand, primarily in Europe and Latin America. It signed 76 Managed Services contracts in 2016, compared with 101 in 2015, although the number of signed major consulting and systems integration contracts increased slightly to 69.

The remainder of Ericsson’s business comes from Support Solutions, which includes its TV and Media business. It said sales in TV and Media were lower than expected, primarily due to a rapid decline of legacy products and that whilst the transition to next-generation platform is ongoing with several customer trials, there have yet to be any sales.

What the puck?

And so to return to the headline of the article. Despite the battering it is taking over its financial performance and numbers, Ekholm says he is up for the fight ahead. In its commentary on its results the CEO said:

“Building on the suggestion from the famous ice hockey player Wayne Gretzky; we will focus on skating where the puck will be, not where it has been.”

Really? Ice hockey? 60 minutes of brawling interrupted every now and then by a game? Perhaps TelecomTV could remind Ericsson of another famous ice hockey quote, this one from Canadian legend Jacques Plante: “How would you like a job where, every time you make a mistake, a big red light goes on and 18,000 people boo?” Surprisingly, there are some similarities after all.

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