Ericsson reflects on 2020, eyes 5G growth

Ericsson today provided more details on its 2020 performance in an annual report that reinforced its view that a four-year turnaround effort is complete.

“We continue to transform the company through maintained focus on research and development,” CEO Börje Ekholm wrote. “Over the last few years, we have added more than 5,000 engineers, and research and development now accounts for 26% of the total workforce. Technology leadership is critical for providing competitive solutions to our customers, but it is equally important for our cost competitiveness.”

The leader also highlighted the company’s $1.1 billion acquisition of Cradlepoint in September 2020 as an effort to make “critical inroads into the enterprise market” and said the company continues to view other potential mergers and acquisitions as playing an important long-term role for its success.

“To ensure that we do not repeat mistakes, we have established a disciplined end-to-end process built on thorough evaluation, careful due diligence, integration planning as well as accountability and close follow-up,” Ekholm explained.

While Ericsson is decidedly positive about its ability to grow and increase market share, the executive cautioned against looking for the killer 5G app. “With 4G, we did not predict in advance the emergence of the many new business models such as streaming or ride hailing. Countries that built out their 4G infrastructure first, came to dominate the app economy. We believe this development will be similar for 5G, but for enterprise applications,” he wrote.

Ericsson’s Revival Rides on 5G, R&D
The company claims it has shipped 6 million 5G-ready radios since 2015, and it closed the year with 122 5G commercial contracts and 79 live 5G networks globally.

Ekholm reinforced the company’s position on open radio access networks (RAN) and virtualization, which it expects to continue evolving and gain earliest traction with less-demanding applications. Ericsson is starting to embrace open RAN principles from a relatively tempered distance, having revealed Cloud RAN software that will hit the market in late 2021. The vendor also inked a deal with Nvidia in October 2019 to develop virtualized RAN, but hasn’t provided any updates on that effort to date.

“We will continue to strengthen our position in open RAN, however 5G is happening now and our focus must be on providing the wider ecosystem of developers and enterprises fast access to 5G so they can benefit from its full potential,” Ekholm wrote.

The company’s turnaround effort began after a 17-year-long bribery scandal involving high-ranking government officials and the falsification of financial documents that spanned six countries. Ericsson reached a $1.06 billion settlement with the U.S. Department of Justice in December 2019, and was formally placed in a three-year monitoring period in June 2020. Current Verizon CEO Hans Vestberg led Ericsson between 2010 and mid-2016 — or six months prior to when these activities were alleged to have stopped — when he abruptly resigned following several underperforming quarters.

Strengthening ethics and compliance is a top priority, according to Ronnie Leten, chair of Ericsson’s board. “The board views the company’s ongoing initiatives to continuously foster a ‘speak-up’ culture as critical to succeeding with this work and supports the company’s ongoing cultural transformation program, Ericsson on the move, aimed at fostering a culture based on integrity and fact-based decision making,” he wrote in the annual report.

COVID-19 Impacts, Business Units Performance
Ekholm and Leten also addressed the impacts of the COVID-19 pandemic on the business and how it expects new operating models to continue after the pandemic ends. “Eventually we will return to more normal circumstances, but I don’t believe that we will revert back to the status quo that existed before,” Ekholm wrote, adding that “we will most likely see remote working as part of the new normal.”

Ericsson’s total 2020 capex came in at $527.5 million, an almost 12% decline from 2019, and it pinned most of those expenditures on test sites and equipment for research and development, network operation centers, and manufacturing and repair operations.

Ericsson’s Networks unit, which includes its businesses in RAN, transport, and network deployment and support services, generated 71% of the company’s sales in 2020. Sales within that division jumped 7% in 2020 to $19.45 billion, and the company attributed most of that growth to increased sales in North East Asia, North America, and Europe.

The vendor’s Digital Services division, which includes business and operational support services, core networks, and cloud infrastructure, represented 16% of annual revenue at $4.37 billion, marking a 6% year-over-year decline.

Sales in the Managed Services unit, which supports network design, application development, and maintenance, declined 12% to $2.65 billion and generated 10% of total annual revenue. Finally, Ericsson’s Emerging Business and Other group, which includes IoT, Cradlepoint, and media businesses, reported a 4% year-over-year revenue decline to $762 million, representing 3% of its annual sales.

Ericsson made nearly one-third of its 2020 revenue in North America, followed by 24% in Europe and Latin America, 14% in Northeast Asia, 13% in Southeast Asia and India, 10% in the Middle East and Africa, and 7% elsewhere. Sales were up 26% year over year in Northeast Asia and jumped 5% in North America.

Ericsson ended 2020 with 100,824 employees, which represents a workforce increase of 1,407 employees, including 709 people that joined the company via its acquisition of Cradlepoint. The company also set a target to be carbon neutral in its operations by 2030. SDxCentral