Ericsson Revamps

Ericsson AB (Nasdaq: ERIC) is reorganizing itself into three new divisions to more closely align itself with the way its carrier customers do business, the vendor's president and CEO Carl-Henric Svanberg announced this morning.

"It's time to build leadership in converging IP networks and in multimedia" and "establish a market defining role in the integration of communications and media," proclaimed Svanberg.

After a significant restructuring and the acquisition of Marconi, Svanberg said it's time to go into growth mode, which will mean an investment in new technologies. "It is important to see where growth is going to come from, and how we can drive this growth," he said.

Svanberg says he expects this new approach to result in market share gains -- and he'll be "disappointed" if it doesn't. Ericsson is the market leader in GSM and UMTS infrastructure, and has been benefiting recently from demand for mobile network kit from emerging markets. (See Emerging Markets Boost Ericsson.)

The company is facing serious compeition in the mobile infrastructure sector from the combined assets of Nokia Corp. (NYSE: NOK) and Siemens Communications Group , and from a merged Alcatel (NYSE: ALA; Paris: CGEP:PA) and Lucent Technologies Inc. (NYSE: LU). Alcatel recently announced it is to buy Nortel Networks Ltd. 's UMTS access business. (See Alcatel Snags Nortel 3G Unit, Nokia, Siemens Create Networks Giant, Alcatel, Lucent Seal Deal, and Investors Say Oui to Alcatel/Lucent.)

Svanberg said the overall aim of the move is "to create a focused, simple, and clear organization" that can "balance long-term growth and short-term profitability... We will also continue to look for bolt-on acquisitions, mostly in the areas of next-generation IP networks and multimedia."

Video and other advanced applications are a big part of the new focus, as Svanberg said the telecom industry is set to change dramatically in the coming years with global mobile subscriptions heading for 4 billion by the end of the decade. The introduction of IPTV onto fixed networks, and bandwidth-hungry services and applications, such as entertainment and the mobile office, onto wireless networks will dramatically boost the required capacity of carrier networks.

Ericsson currently reports its business in terms of two divisions: Systems, which generates nearly all the company's revenues, comprising mobile networks, fixed networks, and professional services, each of which has a subset of smaller business units; and Other, which accounts for just 6 percent of Ericsson's revenues. But from the beginning of January 2007 the company will be organized into three main Business Units:

Yes, fixed and mobile are being combined to support carriers' convergence plans. It includes mobile and fixed access, core and transmission products, and IP equipment. Current business units -- Systems, Access, Broadband, Power Modules, and Cables -- will be integrated into this division. The head of Access, Kurt Jofs, will run Networks, which will have 21,500 on staff.

Growth potential in this unit, where the main point of customer contact is the carrier's CTO, is "moderate," said the CEO. Global Services
No big change here, said Svanberg. The unit will continue to provide network rollout services, consulting, managed services, outsourcing (running carriers' networks for them), and systems integration. It will have 23,000 employees in more than 140 countries and be headed by Hans Vestberg. (See Ericsson to Run 3's Network.) Growth potential in this unit, where the main point of customer contact is the carrier's COO (chief operating officer), is "good," said the CEO.

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