Ericsson (NASDAQ: ERIC) President and CEO, Börje Ekholm, speaking at the company’s Shareholder Dialogue 2021 on March 26, addressed how societal transformation driven by digitalization puts added focus on Ericsson’s 5G technology as a key enabler. Ekholm told shareholders. “Our technology will play an increasingly central role.”
The company has rebounded from financial straits. With the business faltering in 2017, Ericsson set turnaround goals to achieve profitability and growth by 2020.
Ekholm highlighted the successful execution of Ericsson’s customer-focused strategy and reflected that many criticized the strategy as unrealistic when it was launched, arguing that Ericsson needed to cut costs, especially in research and development.
For full year 2020, Ericsson’s revenues grew to $26.5 billion, up 2.3 percent year-over-year at a gross margin of 40 percent and free cash flow before mergers and acquisitions of US$2.5 billion, the highest in the company’s history.
The Networks business unit produces its RAN and Core products. Networks accounted for 71 percent of total 2020 revenues, up 7 percent YoY to $19 billion. North America and China are its biggest markets.
The Digital Services unit which offers Core software tools for customer billing, service activation and tailored services, experienced YoY sales declines as did Managed Services due to the winding down of Ericsson’s contract with Sprint in the aftermath of the T-Mobile merger.
R&D is a core competency. Ericsson has steadily increased its R&D activities. In 2020, Ericsson invested $4.5 billion or 17 percent of sales in R&D programs involving more than a quarter of Ericsson’s employees worldwide. Today Ericsson’s world-leading patent portfolio in cellular technology has more than 57,000 granted patents.
“2021 will be an investment year in order to strengthen Ericsson even further,” says Ekholm. “Our margins will be negatively impacted by lower patent licensing revenues due to important contract renewals, the acquisition of Cradlepoint and investments in our business. However, these are not costs, but rather investments to strengthen our position. We’re taking half a step back in order to be able to accelerate.”
The company considers Cradlepoint critical to helping enterprise customers connect sites, vehicles, mobile workforces, and IoT devices in a simple and secure way using cellular technology. “Cradlepoint is a win-win for our customers since its solutions create new revenue streams for the mobile operators,” says Ekholm.
5G rollouts began in earnest in 2020. The company estimates there were around 220 million 5G subscribers at year-end 2020 compared to 12 million the year before. In 2020, Ericsson announced 44 5G contracts and closed the year with 122 commercial agreements and 79 live 5G networks globally.
“By having the customer in focus, it becomes clear that competitive solutions based on leading technology is our raison d’être,” says Ekholm. “So instead of slimming down on R&D we increased our investments to strengthen our technology position. Today, Ericsson’s position is strong, and we are a leader in 5G.”
Although he expects the company will continue to see strong 5G roll-outs during 2021, Ekholm raised concerns that most parts of Europe are far behind both the U.S. and China when it comes to 5G. “Of course, Europe will benefit from applications developed on top of 5G networks, but these applications will be created where the networks are first deployed,” Ekholm explained.
“Thus, this is a question of future job growth. One example is that Europe was 2-3 years behind North America and China in deploying 4G and today we see very few digital champions in Europe.” Ekholm called for European countries to speed up 5G deployment, saying that it is one of today’s most important political issues.
Ekholm explained the critical role that employees played in turning around its business. At year-end 2020, Ericsson employed nearly 101,000 people in 180 countries.
He highlighted the challenging situation most employees have found themselves in 2020 during the pandemic. “More than 85,000 of our employees have worked from home and most of the approximately 10,000 new employees we recruited last year have yet to physically meet their boss or team,” says Ekholm. “Despite these challenges, we managed to execute on our strategy and deliver to our customers!”
The company’s going forward strategy will focus on growth, with investments to garner market share that ensure scale and to prioritize opportunities in the emerging enterprise segment.
“Our strategy remains in place,” Ekholm emphasizes. “We see great growth opportunities in the enterprise segment, which is why we have expanded our strategy with investments in enterprise applications. In the same way that 4G made it possible to digitalize the consumer market, 5G will digitalize the enterprise sector.”
By John Celentano, Inside Towers Business Editor
Reader Interactions