With the telecom sector offering increasingly slender margins, stagnant growth and a growing hunger for non-proprietary solutions, Ericsson is turning its attentions outside of the traditional telecom network operator sector that has up until now driven its infrastructure and professional services sales.
The move is not a sudden shift in direction for the Swedish vendor -- it has been selling to a variety of customers outside its core base of mobile and fixed line telecom network operators for some time.
Now, though, Ericsson AB (Nasdaq: ERIC), along with other telecom system vendors, is making a more strategic effort to target other verticals and markets where networking know-how and service provider IT capabilities have value -- Ericsson's acquisition of MetraTech earlier this year was a clear indication of this. (See Ericsson Goes Beyond Telecom with MetraTech Acquisition.)
As a result, large enterprises, data center operators and (increasingly) web services giants such as Google and Amazon are becoming important customers and growth-drivers for vendors such as Ericsson.
In financial terms, it's hard to say how important currently. But market diversification is clearly becoming a priority for Ericsson. In its annual report for 2013, the vendor noted that its current business is "characterized by long-term relationships, mainly with large telecom operators. We serve more than 500 operator customers, and an increasing number of non-operator customers, in more than 180 countries ... Sales to telecom operators represent the vast majority of our revenues."
- To build the Networked Society, we have to offer our innovations more widely than to operators alone. This requires new ways to extend our reach. Today we also engage directly with customers in selected industry verticals -- particularly utilities, transport and public safety.
Our aim is to reuse products, solutions and services for these customers. They either have similar business models to telecom operators, or gain from mobile broadband and the larger opportunity to connect anything that benefits from being connected. Connectivity is helping these sectors reinvent the way they create value.
Sometimes we do business in direct collaboration with these companies, and sometimes together with our operator customers. Business requirements -- such as handling large volumes of subscription data, in machine-to-machine applications, for example -- are often a common factor. Our strategy is to explore and commercialize emerging opportunities within and between these sectors.
So how much business is Ericsson, which generates revenues of around US$35 billion annually, already deriving from alternative markets? And how much growth does it expect in the future from these non-telco customers?
Light Reading threw out this question to CEO Hans Vestberg during Ericsson's recent third-quarter results conference call. (See Global Reach Helps Ericsson Grow in Q3.)
The CEO acknowledged that this was a key topic but declined to provide details, saying that this would be an area of focus during the company's Capital Markets Day presentations on November 13.
On that day, Vestberg said there would be an explanation of how Ericsson is identifying and signing up new types of customers, and how its current portfolio -- particularly its less well understood TV and media, OSS and BSS, and IP/cloud assets -- is helping it to target new business opportunities and adjust to the new landscape.
The presentations will be designed for investors and analysts, but they're bound to be of great interest to anyone trying to figure out the future role that Ericsson and others will play in a communications market that looks set to be dominated by cloud services, ubiquitous high-speed wireless connectivity, immersive applications and the Internet of Things (IoT).
— Ray Le Maistre, , Editor-in-Chief, Light Reading