Ericsson CEO Borje Ekholm announced the successful completion of the vendor’s turnaround plan, as he raised 2022 targets for its networks division but severely cut expectations for its digital services business.
In the hours before the company’s capital markets day (10 November), the vendor said following the completion of its recovery, it was now in a strong position to accelerate growth and up investment in 5G enterprise applications.
Ericsson upgraded its 2022 financial targets for managed services and networks, though slashed its digital services goal. The numbers are expected to roughly offset each other leaving its group-wide profitability target unchanged.
The vendor attributed the rise in expected earnings from its networks division to gains in the global market, with improvements in managed services margin the result of R&D investments in AI and automation.
Within digital services, the company had previously predicted an EBIT margin, excluding restructuring, of between 10 and 12 per cent. This has now been cut to 4 to 7 per cent. In the segment, Ericsson noted the priority was “restoring profitability” adding it was being hit with a combination of increased R&D spend and a decline in legacy sales.
Although declaring its turnaround complete, the company is still providing financial targets which exclude restructuring charges.
Looking long-term
In addition to revising its expected performance for 2022, it provided outlines of long-term aims.
Ericsson expects to achieve a 15 to 18 per cent EBITDA margin in the years beyond 2022 through various “improvement activities” including upped software sales. Its 2022 group target is 12 to 14 per cent.
“The execution on our focused strategy has delivered a turnaround which creates a robust base for the future and delivered global leadership in 5G today,” Ekholm said. “Our future value is inextricably linked to wider economic growth and we are well-positioned to play a lead role in the ecosystem of operators, businesses, and decision-makers on whose combined shoulders 5G’s full success rests.”
The executive took the helm at Ericsson in 2017 [1], with the company already in the process of a massive cost-cutting and restructuring programme [2] after a string of huge losses.
Following continued costs cuts under Ekholm and refocusing the business, together with a boost brought by the advent of 5G [3], the company began to book regular quarterly profit [4]s and hail a series of 5G contract wins.
[1] https://www.mobileworldlive.com/featured-content/home-banner/incoming-ericsson-ceo-confident-on-5g-prospects
[2] https://www.mobileworldlive.com/featured-content/home-banner/ericsson-job-cuts-ahead-of-schedule
[3] https://www.mobileworldlive.com/featured-content/top-three/ericsson-hails-5g-deals-milestone
[4] https://www.mobileworldlive.com/featured-content/home-banner/ericsson-bullish-on-5g-progress-as-q4-profit-jumps
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