- Last year was one to forget for the Swedish vendor
- Organic revenues were down by 10% in 2023
- The North American market was the main cause of the decline
- Ericsson isn’t expecting to see a rebound in 2024
- It’s hoping, ultimately, for telcos to invest in 5G standalone technology and buy into the idea of network APIs as new revenue streams
It’ll come as no surprise to anyone following the mobile networks sector that Ericsson has reported grim full year financials for 2023, with organic (like-for-like) revenues down by 10% to 263.4bn Swedish krona (SEK) ($25.2bn) and earnings before interest, tax and amortisation (EBITA) down by 49% to SEK14.9bn ($1.43bn), with significantly reduced spending by the US telcos the main cause of those declines. The vendor also reported a full year net loss of SEK26.1bn ($2.5bn) for 2023 compared with a net profit in 2022, with the bottom line decimated by its $2.9bn writedown of the value of its cloud-based communications platform unit Vonage and $623m of restructuring costs as a result of 9,000 roles being cut in 2023.
To add to the bad news, 2024 isn’t looking any better: While the US market won’t shrink massively again this year, the two main 5G operators in India, Reliance Jio and Bharti Airtel, have completed the main parts of the initial massive rollouts, which came along just at the right time for Ericsson and its main international mobile infrastructure rival Nokia, as massive revenue hikes in India cancelled out at least some of the shortfall from the US market. You can find out more about Ericsson’s fourth-quarter and full year 2023 results in this earnings announcement.
But it’s not just about two countries, important though they are. The global market was “extremely challenging” in 2023, noted Ericsson CEO Borje Ekholm during the vendor’s earnings webcast early on Tuesday and the all-important radio access network (RAN) equipment sector, which feeds Ericsson’s Networks division, is set to shrink further in 2024, added Ekholm. That outlook ties in with the forecast shared this week by research house Dell'Oro Group, which suggested that the RAN market suffered a big drop in value in 2023 and is set to experience further (though less precipitous) decline in the next five years.
So Ericsson is looking to ride the storm and, in Ekholm’s words, “it’s all about being well positioned when the market recovers.” For Ericsson, that means a focus on strengthening its position in mobile network technology, fine-tuning its enterprise networks strategy (including the development of its Global Network Platform to expose telco network APIs to application developers) and driving a cultural transformation at the vendor, which has had some well-reported and costly transgressions in recent years.
“Declines are always followed by rebounds – operators can only sweat their assets for so long” before they have to invest in additional capacity to cope with the growing volumes of data traffic running over their networks,” said the CEO. Quite when this rebound will happen “is hard to predict” and in the hands of the network operators, but the vendor noted in its earnings press release that it believes “current investment levels are unsustainably low for many operators.” Ericsson will be hoping that isn’t wishful thinking and that this year’s telco capex trend will not be set by major US operator Verizon, which has just announced yet another major cut in its planned annual capital expenditure number.
Understandably, the Ericsson team did highlight that it ended 2023 with a major US feather in its cap, securing a $14bn five-year deal with AT&T to be the lead contractor for the deployment of the next phase of the US operator’s 5G network using Open RAN technology. The Ericsson team declined to go into any details, about the profit margins associated with that deal, which is widely believed to have involved low-ball pricing: Ekholm and his team would say only that meaningful revenues would start coming from that deal in the second half of 2024.
In general, what Ekholm is hoping is that the mobile operator spending rebound comes in the form of investments in 5G standalone (SA) network capabilities and a focus on the development of enterprise services and network API-driven business opportunities, because that’s what the Ericsson team has bet its future upon.
“You need 5G SA to get the full benefits” of 5G, stated the CEO during the earnings webcast, “and there are still very few 5G SA networks [operational] around the world,” he added, resisting the temptation to say that Canadian operator Telus has just launched its 5G SA network based on Ericsson technology.
Ekholm added that in terms of fully functional 5G SA networks, at the heart of which is a next-generation cloud-native core platform, “China is ahead…. Enterprise applications are being launched [there] that you don’t see in other markets.”
The hope for Ericsson is that the rest of the world follows in China’s footsteps soon by investing in 5G SA core platforms and tapping into network API platforms, and that this happens sooner rather than later. Ericsson does, of course, have one major telco customer for its Vonage API platform in the form of Deutsche Telekom. The two companies last September announced what they described as a “world-first” network application programming interfaces (APIs) service called MagentaBusiness API. What Ericsson needs soon is a lot more engagements like that one and more 5G SA announcements like this week’s with Telus.
In the meantime, the Ericsson team will hunker down and prepare as best they can for better times. The current situation seems like something of a business nadir for the vendor and there aren’t many positives to take away just now, so why did Ericsson’s share price go up today by almost 4% on the Stockholm exchange to SEK63.71? Because its fourth-quarter financial results weren’t as awful as the financial analyst community had expected.
- Ray Le Maistre, Editorial Director, TelecomTV
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