Ericsson shrinks organization, embraces product-led roots
Ericsson (Nasdaq: ERIC) is increasingly clear-eyed on the challenges the industry faces and the work the company must do to adapt its goals and organization to overcome present and future obstacles. The company anticipates revenue of SEK 190 billion to SEK 200 billion (or $23.4 billion to $24.6 billion) in 2020, down from a projected SEK 203 billion (or $25 billion) in 2017, according to TBR estimates. TBR believes Ericsson will hit the low end of those expectations, at best, as the radio access networking (RAN) market continues to decline until 2020, when 5G will lead to incremental growth; the company exits contracts in noncore areas such as Industry & Society; and the Media business is divested. While TBR agrees margins will recover, we believe they will likely fall slightly short of Ericsson’s 2020 targets of a gross margin of 37% to 39% and an adjusted operating margin of at least 10%. A gross margin of 34% to 36% is within reach with implementation of a restructuring plan that is more accelerated and further reaching (in headcount reduction) than has been articulated.