Ericsson laid down the gauntlet in the managed services segment, arguing its AI and data-driven platform trumped offerings from rival vendors and major IT players, as it outlined growth targets for the division.
In a business update, Peter Laurin, SVP and head of business area Managed Services, said the unit now had more than 1 billion managed subscriptions, controlled 700,000 sites and built a team of than 300 data scientists working on the business, which had developed more than 40 AI use cases to date.
During his presentation he put a major focus on its AI-based Ericsson Operations Engine, which it launched in January 2019 [1], highlighting partnerships with Telenor in Asia, an unnamed tier-1 Indian operator and NTT Docomo.
The company is now hopeful of further take-up, with operators looking to integrate 5G technologies, virtualise core networks, use new devices, and develop smart factories and industry use cases.
Laurin said Ericsson’s main aim was to simplify the process from the back end, with the company bullish it had an industry-beating offering.
“We don’t believe that operators, even the large ones, will have the scale to do this on their own,” he said.
“There is no one that has the subject market expertise and the latest data-driven platforms that mirror those better than we can. It may sound bullish, but we believe we have a unique position there. Not even the large IT players or our competition have the same access to data, or invested as much and been so focused in this area as us.”
No bad deals
As part of its wider turnaround, Laurin said Ericsson had embarked on a push to exit contracts from the Managed Services division which were not profitable, in its bid to raise the margin profile of the entire segment.
He conceded the process, which started in 2018 and is ongoing, pressured its top line.
At the same time, it committed to spend heavily on R&D to provide a more data-driven offering, which he added would not be compromised in the era of Covid-19 (coronavirus).
In Q1 2020 [2] Ericsson’s Managed Services business generated revenue of SEK5.7 billion (US$615 million), 11 per cent of the company’s total sales in the period. Although the unit experienced a two per cent year-on-year decline in sales due to contract exits, its gross margin increased from 17.7 per cent a year ago to 20.6 per cent, thanks to “efficiency gains and timing of costs.”
At today’s event Laurin said the company now truly believed in the future of the business, turning it from a negative to positive, with the aim of gradually improving margins.
This would be achieved by providing its base offering, along with up-selling to more software-based solutions, with AI and data insights the differentiator.
“A lot things…need to come together to scale quickly. We are making investments and improving margins steadily as we go forward. Profit over growth has been the strategy, and therefore we will take deals but not bad deals. We come at it from a position of strength, and that is to take good business and provide value to operators.”
[1] https://www.mobileworldlive.com/featured-content/top-three/ericsson-turns-to-ai-for-managed-services-boost/
[2] https://www.mobileworldlive.com/featured-content/home-banner/ericsson-cautions-on-virus-impact-to-europe-5g/
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