Light Reading
As it reports squeezed margins for 2012, the vendor is hopeful that its networks group will come good in H2 2013

Ericsson Spies Networks Payoff

Ray Le Maistre
1/31/2013
50%
50%

Ericsson AB believes it will start to reap the benefits of its network modernization strategy during 2013 following more than a year of squeezed margins in the division that still delivers the majority of its revenues. In 2011, Ericsson committed to a number of major upgrade projects with customers, knowing that such a strategy would involve labor-intensive, lower-margin business for up to two years. The impact of that decision, coupled with a dip in the value of the network equipment market in general during the past 12 months, can be seen clearly in the company's full-year 2012 financial report issued Thursday: Ericsson's Networks division reported full-year revenues of 117.3 billion Swedish kronor (US$18.5 billion), down 11 percent compared with 2011, while the division's operating margin sank to just 6 percent from 13 percent during the previous year. Those pressures also dragged down Ericsson's full-year gross margin figure to 31.6 percent from 35.1 percent the previous year. Now, though, Ericsson's management team can smell the payback: The hope was always that the low-margin network modernization projects would in turn lead to higher-margin capacity expansion deals that would boost margins noticeably. CFO Jan Frykhammar noted Thursday morning, during a webcast earnings presentation, that "as we go into 2013 we will see the lessening of the impact of those projects … by the second half [of the year] we will see a change to more capacity [deals]." The good news for Ericsson is that while it has taken a hit on its Networks business, its other two divisions have performed better during 2012, with both Global Services (managed and other professional services) and Support Solutions (OSS, BSS and media/video products) recording sales growth of 16 percent and 26 percent respectively. Global Services recorded a slight dip in operating margin to 6 percent while Support Solutions turned an operating profit compared with a loss in 2011. For the full details of the full year and the fourth quarter, take a look at this extensive financial report. The bad news, though, is that while Ericsson's total sales were roughly in line with 2011, up very slightly to SEK227.8 billion ($35.84 billion), its full-year net profit dipped by more than half to SEK5.9 billion because of ongoing losses and impairment costs at comms chip venture ST-Ericsson. (See Euronews: Ericsson Takes $1.2B Hit.) Frykhammar and CEO Hans Vestberg (who was formerly the company's CFO) are convinced that the chip business should be retained (though a new partner is needed -- see Ericsson Seeks New ST-Ericsson Partner). And they're also wary of letting Ericsson's costs and profitability getting trapped in a downward spiral: That's why they are constantly looking for ways to cut costs, even though the company is turning a profit. Ericsson announced a new wave of job cuts in November 2012 as part of its efforts to curb operating expenses. (See Ericsson Sheds 1,550 Staff in Sweden.) The company, though, is constantly gaining staff as it strikes ever more managed services deals that involve the transfer of employees into Ericsson's Global Services division. The company is constantly signing new managed services contracts (15 in the fourth quarter) and ended the year with 110,255 staff, up from 104,525 at the end of 2011. And finally … CEO Vestberg noted during his presentation that mobile packet core business is driving demand for the vendor's Smart Services Router (SSR) products that are built around the Redback assets that cost a fortune (more than $2 billion) in early 2007. Ericsson bagged 19 new router deals during the fourth quarter, bringing the total to 39, so it basically doubled its number of router customer engagements in the final three months of last year. Let's see if that sets a trend for 2013. — Ray Le Maistre, International Managing Editor, Light Reading

(0)  | 
Comment  | 
Print  | 
Newest First  |  Oldest First  |  Threaded View
Flash Poll
LRTV Huawei Video Resource Center
Network Solutions Help the Philippines Jump Ahead

9|17|14   |   2:59   |   (0) comments


In the past, the Philippines has under-invested in technology. Now, the CEO of Softshell talks about how Huawei products help the Philippines jump ahead as the economy improves.
LRTV Huawei Video Resource Center
VCS Observation for Safer Cities in the Netherlands

9|17|14   |   5:20   |   (0) comments


Holland's VCS Observation has been operating for 22 years. Its main goal is to get cities safer. CEO Wim van Deijzen tells us some of the challenges his company faces and how Huawei is helping to overcome these challenges.
LRTV Huawei Video Resource Center
A Conversation With Serbia's Ministry of Interior

9|17|14   |   4:38   |   (0) comments


At HCC 2014, the Assistant Minister of the Ministry of Interior of the Republic of Serbia talks to us about his projects and corporation with Huawei. Solutions like Safe City and E-Government and services like cloud computing are just some of the areas his department is interested in.
LRTV Huawei Video Resource Center
IHS Analyst Discusses eLTE at CCW 2014

9|10|14   |   7:09   |   (0) comments


Thomas Lynch, associate director of critical communications at IHS Technology, talks about broadband in critical communications.
LRTV Huawei Video Resource Center
TCAA on Huawei eLTE: A Broadband Solution for Mission-Critical Communications

9|10|14   |   2:29   |   (0) comments


At CCW2014 in Singapore, the TCCA's Phil Kidner talks about the importance of broadband data for critical communications.
LRTV Custom TV
Spotlight on Cisco: SDN for Optical Networks

9|8|14   |   9:27   |   (0) comments


Cisco's Greg Nehib talks OpenFlow and more on the 'Software-Defined Networking for Optical Networks' panel at the Big Telecom Event in June 2014.
LRTV Custom TV
Cisco's Evolved Programmable Network (EPN)

9|8|14   |   4:05   |   (0) comments


A look at the various demos Cisco showed at Light Reading's Big Telecom Event highlighting Cisco's EPN innovation and how SDN and NFV technologies are enabling a variety of new services.
LRTV Huawei Video Resource Center
The Future of Ultra-Broadband, With Kevin Kelly (UBBF2014)

9|5|14   |   1:13   |   (1) comment


If you think the technological changes we've seen up to now are astounding, just wait until you see what the future has in store. Discuss upcoming breakthroughs with Kevin Kelly, Founding Executive Editor of Wired Magazine, at the Huawei Ultra-Broadband Forum on September 24.
LRTV Huawei Video Resource Center
The Inaugural Optical Innovation Forum in Nice

9|2|14   |     |   (0) comments


More than 170 attendees from network operators, service providers, analyst firms, and component companies from around the world convened in Nice in June for the inaugural Optical Innovation Forum, co-produced by Huawei and Light Reading.
Wagner’s Ring
Data Centers Drive Telcos Into the Future

8|28|14   |   2:20   |   (2) comments


Data centers are at the heart of key trends driving telecom -- network virtualization, the drive for increased agility, and the need to compete with OTT providers.
LRTV Custom TV
Why SPs Should Consider Cisco's EPN

8|27|14   |   5:40   |   (0) comments


Sultan Dawood from Cisco discusses Cisco's EPN, which enables SPs to build agile and programmable networks delivering new network virtualized services using Cisco's Evolved Services Platform (ESP).
LRTV Huawei Video Resource Center
Huawei’s Showcase @ Big Telecom Event 2014

8|26|14   |   2.56   |   (0) comments


SoftCOM is Huawei's framework for telecom business and network transformation. Haofei Liu, Solution Marketing Manager, Carrier Business Group, Huawei, showcases Huawei's SoftCOM architecture in this video.
Upcoming Live Events!!
September 23, 2014, Denver, CO
October 29, 2014, New York City
November 6, 2014, Santa Clara
November 11, 2014, Atlanta, GA
December 2, 2014, New York City
December 3, 2014, New York City
December 9-10, 2014, Reykjavik, Iceland
June 9-10, 2015, Chicago, IL
Infographics
A survey conducted by Vasona Networks suggests that 72% of mobile users expect good performance all the time, and they'll blame the network operator when it's not up to par.
Today's Cartoon
Vacation Special Caption Competition Click Here
Latest Comment
Hot Topics
Glimpsing the Self-Driving Car
Dan Jones, Mobile Editor, 9/12/2014
AT&T to Launch WiFi Calling in 2015
Sarah Reedy, Senior Editor, 9/12/2014
AT&T: We'll Bundle Fixed Wireless & DirecTV
Mari Silbey, Independent Technology Editor, 9/15/2014
New NFV Forum Focused on Interoperability
Carol Wilson, Editor-at-large, 9/16/2014
Connecticut Cities Crowdsource Gigabit Nets
Jason Meyers, Senior Editor, Utility Communications/IoT, 9/15/2014
Like Us on Facebook
Twitter Feed