NEW YORK -- Ericsson (NASDAQ: ERIC) is today holding its annual Investor Update event in New York. The company is reporting on its strategy implementation for faster business execution based on its new company structure with three segments: Networks, IT & Cloud, and Media. The new structure was implemented on July 1, 2016.
Ericsson's strategy builds on efficiency and scale in its core business and investments in the new revenue base from its targeted growth areas. This will enable the company to secure leadership in an emerging broader 5G market - from technology to new business models and services - enabling Ericsson to be a strong business partner to existing and new customers.
Jan Frykhammar, President and CEO, Ericsson says: "We are forcefully executing our strategy to drive incremental profit improvements through greater efficiency, monetizing our installed base in Networks and building new revenue base in IT & Cloud and Media. Current focus is on speed, efficiency and fine tuning of strategy execution."
Market size and outlook
Based on the new segment structure with products and services combined, the company has estimated its addressable market sizes and growth rates as follows:
Networks: addressable market of USD100 billion in 2016, with -2 to 0% CAGR growth 2016-2018
IT & Cloud: addressable market of USD100 billion in 2016, with 5 to 7% CAGR growth 2016-2018
Media: addressable market of USD12 billion in 2016, with 9 to 11% CAGR growth 2016-2018
The company's total addressable market is expected to grow by 1 to 3 percent in 2016-2018.
The negative industry trends from the first half of 2016, due to weaker demand for mobile broadband, are expected to prevail short-term. Therefore, the company is adapting operations to lower business volumes to secure resilience and competitiveness.
Ericsson expects that the market for mobile infrastructure will decline 10 to 15 percent during 2016 and a further decline of 2 to 6 percent in 2017.
New financial reporting structure
As announced earlier, Ericsson will introduce a new financial reporting structure as of Q1 2017, based on the new company structure. Results will be reported in three segments: Networks, IT & Cloud, and Media. Each segment includes the combined sales from products and services.
The restated numbers for 2015 and 2016 will be disclosed ahead of the Q1 2017 report. In the meantime, the company provides the following high level, unaudited numbers for the new segments based on full year 2015:
Networks: 75% of total net sales with mid-teens operating margin, excluding restructuring charges
IT & Cloud: 20% of total net sales with break-even operating margin, excluding restructuring charges
Media: 5% of total net sales with negative low-teens operating margin, excluding restructuring charges
Ericsson AB (Nasdaq: ERIC)