New business units and changes in North America
Ericsson reported another quarter of disappointing financial results and said that it will reorganize and change parts of its executive leadership team. Hans Vestberg will remain CEO of the company, Jan Frykhammar will continue as CFO, and Ulf Ewaldsson will remain the CTO. Other executives are changing their roles somewhat because of Ericsson’s new structure.
The Swedish company has restructured before, and has been operating for the past several years with three primary business units: networks, global services and support solutions (software). Going forward, Ericsson will realign these units in an effort to work more closely with telecom and enterprise customers. Starting in July, Ericsson will have the following business units:
- Network products, headed by Arun Bansal
- Network services, headed by Fredrik Jejdling
- IT and cloud products, headed by Anders Lindblad
- IT and cloud services, headed by Jean-Philippe Poirault
- Media, headed by Per Borgklint
In addition to these business units, Ericsson will form an industry and society customer group headed by Charlotte Sund.
Ericsson CFO Jan Frykhammar said that these changes are a reflection of the way Ericsson has been working for the past several years, as the company’s core markets have been shifting.
“You can’t reorganize a company every year because the market is changing … so we have been working much more cross functionally … the last two years,” said Frykhammar. “Now we feel that it’s time to put a proper business unit in place … with proper profit and loss responsibility … we hope that this will be good for growth.”
Growth has been a challenge for Ericsson recently. During the most recent quarter, sales were down 2% year-on-year and 29% quarter-on-quarter. Operating income was up 63% year-on-year, but down 69% quarter-on-quarter. The company faces stiff competition from China’s Huawei, as well as from the newly combined Nokia and Alcatel-Lucent.
“We have not been happy with either the growth or the profitability that we have had as a company for the last few years” said Frykhammar. “We have had seen gradual improvement in profitability, but net net we haven’t grown enough on the top line. … We think that this structure that we put in place is one piece of an equation to get more focused on growth and also on profitability.”
Frykhammar added that the equation will also include “structural efficiencies” and “flow efficiencies.” He said headcount reductions are likely in emerging markets, where the company sees “low mobile broadband activity levels.” He said the new structure will make it easier for Ericsson to address “overlaps in the portfolio.”
The new structure is meant to help Ericsson better serve its core telecom and wireless customers, while also developing new vertical markets and enterprise customers. Frykhammar said that the network services business will primarily support telecom operators, while the the IT and cloud services unit will support new customers as well as traditional ones.
The company’s rapidly growing software businesses, previously called support solutions, will now operate along customer-focused lines instead of product-focused lines. The services part of Ericsson’s software business will become part of the new IT and cloud services unit. Frykhammar said it was important to divide software services from software solutions, because the services group often ends up working with other vendors’ software.
“If you think about many of these big projects, our software fits in but there will also be a lot of legacy environment and other third party software that we have to work with,” said Frykhammar.
Executive changes
Angel Ruiz is becoming the chairperson of North America and Latin America, and Rima Qureshi will take on Ruiz’s former responsibilities as head of the North American region. Qureshi will also continue in her role as chief strategy officer for Ericsson.
Qureshi worked for six years as an IT consultant in various public and private enterprises prior to joining Ericsson in 1993. She is currently based in Montreal, Quebec.
Ericsson is also promoting Niklas Heuveldop to senior VP and head of sales for the company. Jean-Claude Geha is becoming head of the sub-Saharan Africa region for Ericsson and Peter Laurin is becoming head of the Northern Europe and Central Asia region for Ericsson.
Financial results
For the first quarter of 2016, Ericsson reported sales of $6.4 billion and operating income of $431 million. The company said weakness in emerging markets, the Middle East, and Latin America offset strength in North America, China, and other Southeast Asian markets.
First quarter sales for the company’s networks unit were $3.2 billion, sales for its global services unit were $2.8 billion and sales for its support solutions unit were $419 million.
“Services has grown to be very close to half of the company,” said Frykhammar. “Now we have the opportunity to scale to have two services driven businesses instead of one. … Ultimately we want to get closer to our customers.”
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