What’s next for Ericsson?
Whoever takes over as CEO of Ericsson will have their work cut out as the telecoms infrastructure vendor faces multiple challenges.
The board of director of Ericsson announced yesterday the company’s CEO Hans Vestberg was to leave his position with immediate effect. The decision to oust Hans Vestberg was widely anticipated – and positively received by financial markets. One of the major questions raised after the announcement was instead why the board waited so long to take that step. ”The board was forced to act under mounting pressure from financial analysts and the media instead of understanding earlier on that they ought to look for a new CEO,” said Bengt Nordström, co-founder and CEO of telecoms consultancy firm Northstream, to Industrial IoT 5G Insights. Nordström is critical of the board being reactive instead of proactive. ”The board has asked too few critical questions: how are operators planning to invest? When will Internet of Things (IoT) revenues start to kick in? How can Ericsson benefit from growth in the cloud services space? They have avoided these questions or simply not understood their importance”, he added.
Adjusting to changing market conditions
Neither Hans Vestberg or the board of Ericsson seem to have anticipated changes in market conditions and thereby failed to act accordingly, according to Nordström. It will be a painful exercise for Ericsson but the vendor must adjust the size of its telecoms infrastructure division to the reality of the market: telecoms infrastructure is a declining business. At the same time, the Swedish vendor will have to take a closer look at its product and service portfolio and decide what to keep, what to ditch and what to expand. Both divestments and acquisitions are on the cards. ”Looking back at what Ericsson management said in the past years, one can only note that there lacks a clear strategy. For instance, the company has talked a lot about IoT without actually saying what role Ericsson should play,” said Nordström. ”There are three things that Ericsson must do now. Firstly, they must make sure that the cost efficiency of the core telecoms infrastructure business reflects how the market is developing, instead of adjusting the cost base reactively every third year. They also need to make sure products hit the market in time. Secondly, the company needs to review its product portfolio with great care. Ericsson completed in the past years a number of acquisitions and has got a somehow incoherent portfolio as a result. Thirdly, Ericsson must decide what to bet on and act on it by investing or acquiring,” concluded Nordström.
Unclear path towards IoT and the cloud
Leif Johansson, president of the board of directors at Ericsson, said in a comment on the resignation of Hans Vestberg that the company ought to be looking at new revenue streams, in particular within the cloud, IoT and 5G. While 5G fits right into Ericsson’s core infrastructure business, betting on IoT and cloud services might prove a more delicate equation to solve. ”At Northstream, we are convinced that IoT will have a far-reaching, transformative effect on all vertical industries but just how big an infrastructure business it can become is a lot more uncertain,” said Nordström. We estimate that about 1-3% of operators’ future revenues will come from IoT; this makes it hard to justify very large infrastructure investments that could benefit telecoms vendors. Those who will benefit from IoT are consulting companies. If Ericsson is serious about IoT, then they will have to invest in acquiring competencies in that field,” he said.
The market for cloud services is no less challenging as companies such as Amazon, Microsoft and Google already have strong positions. ”We do not believe that the cloud can become a large business for operators or telecoms vendors. Operators offering cloud services are most likely to do so in collaboration with the likes of Amazon, Microsoft and Google,” said Nordström.
Time is of the essence
Besides making the right choices, Ericsson had better find a new CEO rather quickly as the market is evolving fast and competition is tough. Only days after Ericsson reported its total sales decreased by 11 % and operating income fell 22% year-on-year during the second quarter, China-based competitor Huawei reported instead a 40 percent increase in sales in the first half of 2016, compared to the same period in 2015. Ericsson competitor Nokia is also in a better position than Ericsson to compete thanks to the IP portfolio it gained with the acquisition of Alcatel, according to Bengt Nordström. ”Ericsson’s Achilles heel is the weakness of its IP portfolio; they have a number of products but not a complete portfolio,” said Nordström. Huawei in the meantime continues to benefit from its unique position in China, where the infrastructure business is still a growing market segment. But Huawei has also succeeded where both Ericsson and Nokia have failed. ”In addition to the special position it enjoys in China, Huawei has also succeeded within both the enterprise and consumer segments, contrary to Ericsson and Nokia. Ericsson’s portfolio is the least complete of all three and what is missing is IP. In that respect, Ericsson is dependent on a successful collaboration with Cisco. Nokia also faces challenges here but it is ahead of Ericsson and has got a smaller cost structure compared to Ericsson’s,” said Nordström.
Experience in telecoms required
What type of CEO does Ericsson need then? According to Bengt Nordström, the board should look for someone with both ICT and telecoms experience, someone that can shoulder Ericsson’s many challenges from day one. ”Ericsson needs an experienced leader well acquainted with both ICT and telecoms. They should avoid recruiting someone who will need a year to be up and running. You do not want to end up with a Nokia-Elop scenario, which saw tens of thousands of jobs disappear,” he said.
IIoT News Recap: Sync 3 with Android Auto and Car Play available on all Ford 2017 models; Wisekey intends to merge with Openlimit; Strizh Telematika deploys IoT network in Kazakhstan
Connected car: Sync 3 with Android Auto and Car Play available on all Ford 2017 models
Ford announced that all 2017 model-year Ford cars, SUVs, light trucks and electrified vehicles will offer SYNC 3 voice-activated communications and entertainment system integrating Apple’s CarPlay and Google’s Android Auto. “SYNC 3 is already a major leap forward in terms of functionality, simplicity, and user experience – Ford’s promise that every new model now ships ‘Smartphone-ready’ is huge,” said Jeffrey Hannah, director of North America for global automotive technology research firm SBD in a comment on the announcement. “Ford is not taking the traditional approach of introducing Apple CarPlay and Google Android Auto on a few piecemeal models or as an expensive option on luxury vehicles only.”
M&A: Wisekey intends to merge with Openlimit to create IoT security powerhouse
In a move to expand its cybersecurity and IoT platform and gain access to the German and European IoT market, Wisekey announced it intends to merge with Openlimit. Due diligence will be conducted over the next month. “With this business combination, we continue our mission to position of Wisekey cybersecurity platform as the first ever consolidated integrated vertical process providing a total ‘chip to root solution’ to our existing clients and users and will also give us access to Openlimit customers, in particular in Germany and other large and more mature markets in Europe. Wisekey will be reinforced with 65 staff located in Berlin and will fully participate on Industry 4.0 German vision for the future of manufacturing, one where smart factories will use the Wisekey IoT platform to digitize their processes and reap huge benefits in the form of improved quality, lower costs, increased efficiency and enter the 4th Industrial Revolution,” said Carlos Moreira, chairman and CEO of Wisekey, in a comment on the intended merger.
Smart city: Strizh Telematika deploys IoT network in Kazakhstan
Strizh Telematika, a Russian company, has launched an IoT network in Shymkent in Kazakhstan to be used for a smart city system, Telecompaper reports. The company is also reported to plan IoT network deployments in Kyrgyzstan, Armenia and Moldova.