In a speech recorded to played for a virtual AGM taking place on March 31, Ericsson CEO Borje Eckholm hinted that Ericsson is ready to think once more about diversifying beyond its core mobile networks focus.
However, this won’t be the the “non-core activity” diversification that previously upended Ericsson, but a more targeted strategy that builds on its 5G product line and customer base.
Taking something of a victory lap for the company’s strategy since 2017, Eckholm said that the company’s decisions to focus on mobile networks R&D had been successful. The company now has 25% of staff working in R&S of some kind, (compared to 17% before). It is growing as a business for the first time since 2013 and as 86 commercial 5 G contracts, with 27 operator customers now live. “We see no-one ahead of us,” Eckholm said, although Huawei thinks it has over 90 5G contracts, to be fair.
It reached its 2020 target for operating margin nearly a year early and it is generating cash – nearly 17.7 billion krone in free cash flowr last year (despite the DOL/SEC mega-fines) . It has cash on hte balance sheet of 32 billion kroner and a gross cash pile of 72.2 billion kroner. That, said Eckholm, gives it some robustness against “weaker conditions in society”, ie. any potential economic slowdown due to the current corona virus shutdowns.
And now we see that Ericsson is thinking again about how to expand beyond its operator customer base. Previously the vendor has been cagey about this – portraying itself merely as an enabler for its operator customers to address enterprise markets. This was in something of a contrast to Nokia, for example, which has given a stronger emphasis to direct enterprise sales.
Today, Eckholm said, “We continue to invest in our core activites, but we also see possibilities in building upon our core competencies in networks, and our strong customer relationships, in order to offer solutions to enterprise, which will become a large 5G segment.”
That said, Eckholm was careful not to step too far away from the operators. He said these emerging business opportunities are in areas “where we make investments in order to create new sources of revenue for operators. This is mainly geared towards companies in need of connecting their products or facilities.”
Ericsson is currently seeing 150% annual growth in connected products on its “gloabl connectivity platform, he said – which Eckholm said is about twice the growth rate of the overall market.
Another area of potential growth is in “dedicated networks for companies and industrial connections”. Most of this portfolio is at an early stage of investment, but as the next generation networks business group grows, then these business networks give Ericsson the prospect of growth “in step with 5G rollouts”, Eckholm said.
As TMN has written before, companies expand and contract focus. As Ericsson narrowed its vision Nokia, as a result of its Alcatel-Lucent acquisition, expanded its own. Now, as Ericsson lifts its eyes once more, Nokia might see this as vindication – as long as the CEO-elect is content to stick with the strategy.