Ericsson

Ericsson’s strategy is to create long-term value through technology leadership. We aim to address long-term opportunities that present clear advantages of scale and new, profitable revenue streams. The company’s ambition is to grow faster than the market through organic growth and acquisitions, with a focused approach.

Q3 2022. Ericsson Group net sales in the quarter grew by 3 percent organically, driven by strong performance from Networks. EBITA of SEK 7.7 billion corresponded to a margin of 11.3 percent, where higher gross income from business growth was offset by increased technology investments and the consolidation of Vonage with acquisition accounting and one-time acquisition costs.

The Networks business saw strong organic sales growth of 7 percent excluding IPR (4 percent including IPR), with growth driven by market-leading portfolio, primarily in North America, where operators continue to forcefully drive 5G deployment. After expected record operator CapEx in 2022 in North America, the vendor anticipates RAN CapEx to hold up well in 2023, albeit at a lower level than this year. Ericsson continues to further strengthen its position by increasing global footprint, which will lead to overall growth in 2023.

In the Enterprise Wireless Solutions business, the vendor has almost doubled sales in Q3 2022 compared with Q3 2021.

In the new Cloud Software & Services segment, revenues were impacted by lower Managed Services sales and IPR revenues. Gross income was stable after offsetting ongoing 5G Core deployment costs, the ambition being to unleash the great potential present in this business. Its new management team is taking further actions to turn around the business and establish a satisfactory profitability. This includes strong focus on driving down costs, including realizing synergies from combining two business areas, while solidifying its technology and market leadership position. Improvements in performance will be gradual.

In the current inflationary environment, pricing adjustments as well as leveraging product substitution to manage margins are being made. Operations across the company are being simplified, and it will continue to be proactive in reviewing options to reduce costs, whilst continuing to develop best-in-class products and services. Fundamentally, cost competitiveness through an intense focus on internal end-to-end efficiency gains and structural costs is being strengthened. Ericsson is dedicated to the long-term target of EBITA margin of 15–18 percent no later than 2024, and will take out costs to secure delivery of this target. In order to deliver on the cost reductions, it expects restructure costs to increase and be more in line with the long-term guidance of 1 percent of net sales, albeit varying by quarter. Cost efficiency is also crucial to allow investments in technology leadership and to strengthen resilience in an uncertain market.

During 2021, Ericsson capitalized on the strength of its core infrastructure business and continued to build a foundation for growth that takes advantage of new opportunities in enterprise digitization. The vendor expanded its market share and improved gross margins.

In addition to growing its core business, the vendor pursued opportunities in the enterprise space – leveraging the strength of its mobile technology. These included dedicated networks, wireless WAN, and IoT connectivity.

Ericsson acquired Vonage, a global provider of cloud-based communications, with over 120,000 enterprise customers and more than one million registered developers. Through Vonage, it offers unified communication and contact center platforms to its existing customer base. Vonage is being run as a new business area. This follows the same integration approach taken with Cradlepoint, which is performing well, in line with its acquisition plans, despite a delayed uptake of 5G devices.

Business performance. In 2021, Ericsson continued its strategy execution and cemented its position as a global 5G leader. Its strong product portfolio and deep R&D capabilities supported market share gains despite considerably lower sales volumes in Mainland China. By year-end, Ericsson supplied 108 out of 200 live 5G networks.

Sales in 2021 remained stable at SEK 232.3 billion, impacted by reduced market share in Mainland China and currency. Organic sales growth excluding the impact from market share loss in Mainland China was 8 percent. Gross margin, excluding restructuring charges, amounted to 43.5 percent, an increase from 40.6 percent in 2020, driven by operational leverage and improved competitiveness. EBIT margin, excluding restructuring charges, amounted to 13.9 percent, up from 12.5 percent as a result of improved gross income, primarily driven by Networks.

Ericsson offers telecom operators a comprehensive portfolio, incrementally evolving operators’ long-term opportunities in 5G and beyond, with cost-efficient communications solutions.

Networks offers multi-technology-capable radio access network (RAN) solutions for all spectrum bands. Networks’ largest addressable market is the RAN market, which according to Dell’Oro amounted to around USD 42 billion in 2021. Driven primarily by 5G rollout, the RAN market grew by 12 percent in 2021, and is expected to grow by 5 percent in 2022. Through technology leadership and leveraging the competitive 5G portfolio, Ericsson’s market share increased to around 39 percent, excluding Mainland China, in 2021.

Some 80 percent of the 20 largest telecom operators, by revenue, have chosen Ericsson for standalone core (5GC), a solid base to build on when the more than 250 remaining existing customers are to make their vendor choices. All of Digital Services’ portfolio areas contribute to the 5G business and technology shift and 5GC serves as a beachhead to attach sales from other parts of the portfolio.

Globally, the core networks market is dominated by a handful of vendors. Ericsson is the second largest. Most of the markets for the other parts of the Digital Services portfolio are much more fragmented, where the market leaders are estimated to have 7–15 percent market share.

Ericsson is a leader in Managed Services, managing networks for approximately 200 customers, together serving more than one billion subscriptions. Out of these customers, 20 – representing more than 500 million subscriptions – have transformed to the Ericsson Operations Engine in 2021, from 10 in 2020, 11 of which are running live 5G networks.

The addressable market for Managed Services was USD 34 billion in 2021, and is expected to grow with a 3–5 percent CAGR between 2021 and 2023. The addressable market represents 27 percent of the telecom operators’ total Network, IT, and NDO-related operating expenditures. The balance is covered by the telecom operators’ in-house activities. Demand for Managed Services is mainly driven by increased complexity in the customers operating environment due to the continued adoption of 5G and virtualized networks.

Ericsson addresses Enterprise segment with a growth rate of 20–30 percent CAGR, with an increasing need for wireless, reliable and secure connectivity, and where there are opportunities for platform economics. The total addressable market in Enterprise for Ericsson is worth an estimated USD 15–25 billion by 2025. Its private 5G networks, Cradle-point Wireless WAN solutions and the IoT Accelerator platform, make it possible for enterprises to use technologies like AR/VR at scale to process large sets of data, support autonomous operations in factories and at logistical sites, and use real-time analytics to manage drones and other moving objects.

2021 was a year marked by global challenges, including geopolitical ones, which required a lot from the Ericsson organization. We also saw a continuation of the pandemic and the difficulties it caused, such as global supply chain issues and economic disruptions. Ericsson demonstrated its ability to adapt to demanding realities by strengthening supply chain resilience and by working remotely.

By leveraging its competitive 5G portfolio, Ericsson continued to build on the strong foundation of its core business and increased its overall footprint across the market, despite a major drawback in Mainland China.

Ericsson’s ambition is to continue to grow and develop its core mobile infrastructure business, based on market growth and market share gains. With the investments made in enterprise, through pre-packaged wireless solutions and global network platform, the vendor is putting its company on a higher growth trajectory. Even though investments outside its core business may hurt profitability short term, the pace has been accelerated toward reaching the long-term target of an EBITA margin (excluding restructuring charges) of 15–18 percent. After delivering an EBITA margin (excluding restructuring charges) of 14.6 percent in 2021, the ambition is to reach the long-term target no later than in 2 to 3 years.