Tuesday, March 28, 2017

Four Things You Need To Know About Ericsson’s Crisis — And The Urgent Pivot To Catch Up With Nokia And Huawei

Via Business Insider:

Ever since Ericsson’s previous CEO, Hans Vestberg, was fired last summer, questions have arisen regarding the Swedish network giant's future direction.

Ericsson's latest quarterly results has confirmed that the uncertainty has translated into market share losses in core businesses. The company's new CEO, Börje Ekholm, faces the daunting task of giving new direction to a company in crisis.

1. Ericsson's first quarter results revealed major asset impairments

An Ericsson presss release from Monday reveals that the Swedish network giant’s assets are looking at impairments that affect the results to the tune of 3-4 billion Swedish krona. This is caused mainly by development costs in business segments Media and IT & Cloud, and will not affect first quarter cash flow, according to Dagens Industri (Di).

In total, first quarter impairments and restucturing costs will negatively affect Ericsson's assets with 12 to 15 billion Swedish krona ($1,4-1,7 bn), according to Di.

2. Nokia and Huawei are gaining speed

Ericsson continues to lose market share in its Networks business to chinese Huawei; not only in China, but also internationally. Furthermore, Finnish archrival Nokia is also gaining ground on Ericsson, writes Di.

Ericsson’s problems are stemming from uncertainty in its business strategy. Moreover, the company's technical capabilities are not competitive enough, says an anonymous source to Di.

3. The CEO is announcing a new strategy to counter the crisis

The company’s new CEO, Börje Ekholm, has announced a "more focused business strategy", and a reshuffling of the management team.

"We are going through a period of change, and we need to make some changes", Ekholm said, emphasizing that the focus will purely be on customers going forward.

A new restructuring plan will cost the company some 6-8 billion SEK ($0.7 - 0.9 bn), and it will mainly focus on new investments in the Network business segment.

“They are in a hurry. Creating a new change strategy is a separate thing than putting it into action and creating results”, said an anonymous industry source to Di.

4. Private investors are dumping Ericsson stock

Many private investors are dumping the Ericsson stock; down more than two percent today.

Ericsson investors are nervous about potential new rights issues; fears that are amplified by memories of 2002, when the company’s stock crashed 24 percent following a sizeable rights issue.

Ericsson, however, has said it is not considering such move at the moment.

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