Ericsson CEO Borje Ekholm today announced lower sales target for the telecom networking company in 2020 but with significant improvements in operating margin.

Ericsson said it’s not expecting any significant revenue contribution from 5G networks during 2020 or before though most of the global telecom operators including China Mobile, AT&T, Vodafone, Airtel, SK Telecom, SoftBank and SK Telecom, among others are going to make investment in 5G shortly.

Ericsson expects that the Radio Access Network equipment market addressed by segment Networks will decline by 2 percent during 2018, and by 1 percent during 2019. The RAM market is expected to remain flat in 2020 with no further decline.

Ericsson is targeting revenue of SEK 190 – 200 billion in 2020 with operating margin of 10 percent as compared with SEK 211 billion with operating margin of 3 percent. The target does not include the ongoing restructuring charges of around SEK 5-7 billion earmarked for 2018.
Ericsson is targeting to generate SEK 128 – 134 billion from network business, SEK 42 – 44 billion from digital services and SEK 20 – 22 billion from managed services in 2020. Ericsson’s 2017 sales from network business will be SEK 133 – 135 billion, SEK 41 – 43 billion from digital services and SEK 24 – 26 billion from managed services.

The 2020 target of Ericsson indicates that the Sweden-based telecom equipment vendor will not be targeting webscale companies and enterprises for adding new revenue streams. Both Huawei and Nokia have started looking at additional revenue streams beyond their telecom service provider customers. Telecom operators are in the process of reducing Capex (capital expenditure) to improve their margins.

“Our job and commitment is to rebuild Ericsson to be successful long-term. Near term we will prioritize profitability over growth. Healthy profitability is the base for long-term success and will give us the freedom and resources to invest for the long term,” said Borje Ekholm, president and CEO of Ericsson at the company’s Capital Markets Day in New York.

“Though we are not planning for significant 5G sales before 2020, we are convinced it will create value for our customers in their mobile broadband business, enabling them to manage very high traffic growth. But even more important, it has the potential to create new businesses and revenue streams for service providers based on use cases such as industrial applications,” Borje Ekholm said.

Ericsson strategies

Ericsson is increasing R&D for technology and cost leadership in Networks.

Ericsson will be trying to achieve break even by shifting to software-led solutions and adjusting the cost base in Digital Services.

Ericsson is undertaking review of its Managed Services contracts review and started investments in automation.

“We have plans in place for all segments that combined sum up to an operating margin of between 10 – 12 percent by 2020, but since there are execution risks in all plans and we start from a weaker starting point than originally planned for, we prefer to be cautious and commit to the lower end of the range,” Borje Ekholm said.

Ericsson has accelerated cost reduction activities to achieve an annual run rate reduction of at least SEK 10 billion by mid-2018, split between General & Administration (30 percent) and Cost of Sales (70 percent).