Ericsson CEO to Cull Contracts as Cost Cuts Are Insufficient

Ericsson CEO Borje Ekholm promised to intensify efforts to cut costs and get rid of more than $1 billion in unprofitable contracts in his bid to revive the ailing Swedish wireless network supplier, according to Bloomberg.

First-quarter sales fell 11 percent to 46.4 billion kronor ($5.2 billion), Ericsson said. Analysts predicted revenue of 47.6 billion kronor on average. The company’s closely watched gross margin, the share of sales remaining after production costs, rose to 30.5 percent from a 15-year low of 26.1 percent in the previous quarter. Analyst had predicted 30 percent.

“The immediate priority is to improve profitability while also taking action to revitalize technology and market leadership,“ Ekholm said in a statement. “We are not satisfied with the cost structure of the company and the existing cost and efficiency program is not yielding sufficient results.“

A 12.3 billion-krona operating loss in the first quarter, weighed down by provisions and writedowns, underlines the urgency of Ekholm’s plan to revamp Ericsson. Aside from cost cuts, it also calls for a boost to sales of a new radio unit platform, promising lower costs for clients and better profitability.

Culling “low-performing“ contracts in Ericsson’s managed service business, which works with carriers to build networks and manage them on a day-to-day basis, will reduce sales through 2019, CFO Carl Mellander said in an interview. This year, the company expects the industry trends and business mix in mobile broadband from 2016 to prevail.

Ekholm last month put a media business and a unit that sells hardware for cloud computing up for strategic review, as he sharpens Ericsson ahead of the expected roll-out of 5G mobile networks in the coming years. In cloud products, Ericsson needs to gain necessary scale and the company is seeking “alternatives,“ Ekholm said. “Tangible improvements“ in profitability for the unit are expected during 2018.

The CEO said Ericsson could sell its media business, which provides equipment for video streaming and processing, or seek partnership deals to find new buyers for its products and services. The new radio platform unit, Ericsson Radio System, contributed to improving profitability and stabilized Ericsson’s market position, after several years of decline, Ekholm said.