& cplSiteName &

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        ADD A COMMENT
From The Founder
Download our complete guide to de-risking NFV deployment in 2016, including:
  • An eight-step strategy to deploying NFV safely, based on input from the companies that have already started virtualizing their production networks.
  • Interviews with leading executives at Colt, AT&T, Deutsche Telekom, Cisco, Nokia, ZTE, Ericsson and Heavy Reading.
  • Flash Poll
    Live Streaming Video
    Prepping for the Future: Upskill U Explained
    During this short kick-off video, Doug Webster, Vice President of Service Provider Marketing, Cisco, and Light Reading’s CEO & Founder Steve Saunders give an overview of Upskill U.
    LRTV Interviews
    Ditching the Slash & the Orchestration Wars

    5|3|16   |     |   (2) comments


    SDN and NFV have been inextricably bound with each other for so long that on a conceptual level, smooshing them together into one catch-all phrase – SDNFV – is now justifiable, according to Dan Pitt, executive director of the Open Networking Foundation (ONF). Light Reading spoke to Pitt at the NFV World Congress, where he explained that the next ...
    LRTV Custom TV
    ZTE TV Connect Highlights

    5|3|16   |     |   (0) comments


    ZTE gives us a tour of its booth and new products at TV Connect in London.
    LRTV Custom TV
    Deluxe's Unified Delivery Solution

    5|3|16   |     |   (0) comments


    Join Alan Breznick of Light Reading and visit the Deluxe booth at NAB! Here you'll find Deluxe's Unified Delivery Solution, OTT video, virtual reality, HDR, 4K and much more!
    LRTV Interviews
    Verizon Puts Gray Boxes in the Shade

    5|2|16   |   04:33   |   (1) comment


    When it comes to the white box trend, "gray" boxes, which have a slight proprietary twist, don't give service providers and end users the advantages they're seeking, according to Verizon's Vice President of Product and New Business Innovation Shawn Hakl.
    LRTV Custom TV
    Dealing With a Disrupted Video Market

    5|2|16   |     |   (0) comments


    Ericsson's Simon Frost discusses how traditional pay-TV providers can cope with the big changes wrought by the rise of OTT video and IP technology.
    LRTV Custom TV
    The VNF Responsibility of Red Hat

    5|2|16   |     |   (0) comments


    At MWC, Caroline Chappell of Heavy Reading visits the Red Hat booth and sits down with Chris Wright to talk about the responsibility the VNF needs to take on in order to ensure the operators get the carrier-grade performance they expect for their network.
    LRTV Interviews
    AT&T Expert on the Key Pillars of UC

    4|29|16   |   03:58   |   (0) comments


    Vishy Gopalakrishnan, AVP of product marketing at AT&T, talks about the three developments that are making unified communications and collaboration secure and reliable for enterprise users.
    LRTV Documentaries
    LRTV Report: Mobile Core Innovation

    4|28|16   |   25:32   |   (0) comments


    Hear from multiple industry experts from Deutsche Telekom, SK Telecom, Heavy Reading, Huawei, Cisco, Ericsson, Nokia, NEC and many more about developments in the mobile core as operators virtualize their IMS and evolved packet core systems and prepare for a 5G world.
    LRTV Huawei Video Resource Center
    NFV World Congress Highlight

    4|26|16   |     |   (0) comments


    The highlight of the NFV World Congress contains exciting telecom news. Join us for an inside look at Huawei's ICT 2020 plan and its latest collaboration with industry leaders.
    LRTV Interviews
    Unified Comms Finds Its Voice

    4|25|16   |   03:44   |   (0) comments


    Peter Quinlan, VP of UCC Product Management at Tata Communications, talks about the evolution of the unified communications and collaboration services sector and how voice is now a big part of current developments.
    LRTV Documentaries
    So... What Do We Do Now?

    4|25|16   |   03:24   |   (0) comments


    After a long hiatus, Max Dingman, the CEO of a GeeGhiz, returns for a motivational board room pep talk.
    LRTV Documentaries
    NAB 2016 Highlights

    4|21|16   |     |   (0) comments


    Light Reading's Cable/Video Practice Leader Alan Breznick climbs down from the slots to tell us about the latest news in broadcast technology at NAB 2016 in Las Vegas.
    Upcoming Live Events
    May 23, 2016, Austin, TX
    May 23, 2016, Austin Convention Center
    May 24-25, 2016, Austin Convention Center, Austin, TX
    September 13-14, 2016, The Curtis Hotel, Denver, CO
    December 6-8, 2016,
    June 16-18, 2017, Austin Convention Center, Austin, TX
    All Upcoming Live Events
    Infographics
    A new survey conducted by Heavy Reading and TM Forum shows that CSPs around the world see the move to digital operations as a necessary part of their overall virtualization strategies.
    Hot Topics
    Ultra-Broadband Summit, Hong Kong
    Iain Morris, News Editor, 4/27/2016
    Amazon AWS Reports $2.6B Quarterly Revenue, Up a Colossal 64%
    Mitch Wagner, West Coast Bureau Chief, Light Reading, 4/28/2016
    WiCipedia: Woman Cards & Bitch Switches
    Sarah Thomas, Director, Women in Comms, 4/29/2016
    Sprint CEO: Our Spectrum Is for 5G
    Dan Jones, Mobile Editor, 5/3/2016
    Amazon & Other 'Big 4' Cloud Providers Crushing Competitors
    Mitch Wagner, West Coast Bureau Chief, Light Reading, 4/29/2016
    Like Us on Facebook
    Twitter Feed
    BETWEEN THE CEOs - Executive Interviews
    In this latest installment of the CEO Chat series, Craig Labovitz, co-founder and CEO of Deepfield, sits down with Light Reading's Steve Saunders in Light Reading's New York City office to discuss how Deepfield fits in with the big data trend and more.
    Grant van Rooyen, president and CEO of Cologix, sits down with Steve Saunders, founder and CEO of Light Reading, in the vendor's New Jersey facility to offer an inside look at the company's success story and discuss the importance of security in the telecom industry.
    Animals with Phones
    Sloth Mail Click Here
    Sloth mail -- somehow even slower than snail mail.
    Live Digital Audio

    Of all the tech companies in the Valley, Intel has made the most aggressive commitment to building a diverse and inclusive workplace culture. It's doing so by taking concrete, measurable steps, making a large financial investment and through a commitment to complete transparency about its progress. In this radio show, WiC Director Sarah Thomas will be joined by Shlomit Weiss, Intel's Vice President, Data Center Group, and General Manager of Networking Engineering, who will share with us why Intel is tackling this huge challenge, how and to what effect. She will also discuss her unique experiences leading development of Client SOC development in the past and today leading development of all of the chipmaker's silicon hardware for networking IPs and discrete devices and managing a team of 600 engineers across Israel, Europe and the US.