Ericsson Denies Ditching the Enterprise Market
Ericsson has denied reports that it has "scrapped" its efforts to win new business outside of the telecom operator segment but has confirmed, and clarified, that its enterprise ambitions have been scaled back under its new CEO.
The Swedish vendor clarified its position in comments provided directly to Light Reading following a report from Reuters that stated Ericsson had "ditched" its efforts to pursue customer deals outside the telecom sector as it focuses on restoring profitability at its core business.
Ulf Ewaldssson, the head of the Swedish vendor's digital services division, is said to have told Reuters that Ericsson would "focus on telco clients and networks exclusively for now."
But Ericsson says it has not completely abandoned its enterprise ambitions and that it will attempt to build new enterprise market business opportunities using two key channels: its service provider customer base; and via its partner, Cisco Systems Inc. (Nasdaq: CSCO).
Significantly, this means that Ericsson's nascent Internet of Things (IoT) unit, announced in late March, will attempt to develop sales of its IoT platform and solutions business in collaboration with network operators, and not market its IoT offerings directly to potential non-telco customers or via other enterprise/vertical sector sales channels.
"We will build our IoT business with service providers, addressing industries based on use cases," said a spokesperson for the equipment maker. "We will continue to address clients outside of the telecom industry through our service provider customers."
Ericsson AB (Nasdaq: ERIC) says the strategy to no longer use direct or other sales channels to reach enterprise customers was communicated as part of its revised strategy in late March, though the details of its enterprise go-to-market plans may have been overshadowed by other strategic developments. (See Ericsson Tightens Focus, Warns of $1.7B Q1 Hit.)
The move is in sharp contrast to the strategy of Finnish rival Nokia Corp. (NYSE: NOK), which is busy investing in new sales channels aimed at major enterprise customers, and will certainly have ramifications for targets that Ericsson announced during its Capital Markets Day in November 2014.
Then, the Swedish company (at the time run by former CEO Hans Vestberg) said it planned to generate between 20% and 25% of its total revenues from non-telco customers by 2020, up from about 10% in 2013.
But in its 2016 annual report Ericsson revealed that, two years on from that strategic announcement, revenues from outside the telecom operator sector -- including sales to media companies and income from intellectual property rights (IPR) -- remained static at 10% of total revenues.
That disappointing performance may have convinced new CEO Börje Ekholm, who took charge of Ericsson at the start of this year, to overhaul that enterprise growth strategy. (See Is Ekholm Ericsson's Savior or Seller? and Ericsson Ejects CEO Vestberg.)
In response to questions about revised targets for sales beyond the telecom sector, Ericsson stated only that it is not currently communicating any new figures.
The scaled down, more narrow focus on enterprise sales ties in with Ericsson's plan to double down on its networks business as part of a new turnaround plan and consider "options" for non-core assets including its media and cloud hardware businesses.
Last week, Ericsson was reported to have hired banks to explore a sale of the media business. It also completed the sale of its 300-person power modules business to Asian electronics company Flex. (See Ericsson Moves Closer to Media Business Sale – Report.)
Ericsson has been rocked by a series of earnings setbacks -- with net income tumbling to just 1.9 billion Swedish kronor ($220 million) last year from SEK13.7 billion ($1.6 billion) in 2015 -- amid fierce competition from China's Huawei Technologies Co. Ltd. and a downturn in global equipment markets.
Ekholm is determined to improve profitability by cutting costs and ditching some legacy business activities. (See Ekholm's Vision of Slimmer Ericsson Lacks Detail & Dazzle.)
Yet ratings agency Moody's has downgraded Ericsson to junk status out of concern that its focus on cost cutting leaves it short of a clear strategy for sales growth.
Ericsson's share price currently stands at SEK62.95 on the Stockholm exchange, down by 1.0% today but up 16.9% since the start of the year.
In deciding to pursue enterprise opportunities through telco customers, Ericsson is taking a very different approach from key rivals Huawei and Nokia, both of which are targeting enterprise customers directly as well as through service provider channels.
Having last year completed a €15.6 billion ($17.6 billion, at today's exchange rate) takeover of Alcatel-Lucent, Nokia believes that expanding into vertical markets "adjacent" to the telecom sector will fuel sales growth over the next five years. (See Nokia to Create Standalone Software Biz, Target New Verticals.)
It reckons those markets are worth about €18 billion ($20.3 billion) in sales and will grow at a compound annual growth rate of 13% over the next five years.
Nokia estimates that its main addressable market is worth €113 billion ($127 billion) but will grow at a CAGR of just 1% over this period and decline by 2.2% this year.
Ericsson has not provided five-year guidance but expects the mobile infrastructure market to shrink by 2% to 6% this year.
Although Nokia is widely perceived to be in a resurgent mode while Ericsson struggles, Bengt Nordström, the CEO of the Northstream market research and consulting group, doubts whether telecom vendors have the wherewithal to address the enterprise sector directly.
"Their sales channels are not geared for the enterprise market," he tells Light Reading. "On a global basis there are probably hundreds of millions of enterprises from small shops to multinational corporations and they all have different needs and that is why sales networks need to be so big."
Nordström also thinks telecom vendors lack the products that many enterprise customers need. "The products they have and sell to operators are not really suitable for a channel strategy -- they need to really develop products for that market," he says.
Nokia earlier this month took the wraps off a new routing platform and network processor that it hopes to sell to web-scale giants such as Amazon.com Inc. (Nasdaq: AMZN) and Google (Nasdaq: GOOG) as well as to its traditional telco customers. (See Nokia Heralds Fastest Network Processor Ever.)
But some analysts have expressed skepticism that it can make inroads into the web-scale market with its proprietary approach, suggesting the latest move is at odds with the current focus on virtualization and white box networking.
— Iain Morris, , News Editor, Light Reading