Ericsson CEO sketches strategy

Telefonaktiebolaget LM Ericsson will continue to see softer margins in 2Q, but expects margins and growth to improve in the second half of the year.

Ericsson will continue to see softer margins in its second quarter, but the Swedish company expects margins and growth to improve in the second half of the year, according to its CEO, Carl-Henric Svanberg.

Ericsson's first-quarter operating margin declined to 17 per cent from 21 per cent from the same quarter a year ago, and Svanberg said the second-quarter margins wouldn't be much different.

He was more bullish on future growth, which he said would come as larger vendors squeeze out smaller vendors for operator business, from the development of next-generation networks and rollout of broadband networks, and an increase in the use of professional telecommunications services. The company also predicted it would have more of a mix of software and hardware sales in the second half of the year.

Ericsson is investing about Euro 500 million ($US639 million) to Euro 600 million per year in research and development for next-generation networks, Svanberg said.

On the services side, the company is expanding its efforts beyond traditional services into system integration, hosting and managed services.

Svanberg said the growth of mobile broadband and the rollout of fixed broadband going through the same converging core network was also going to drive the need for transport and transmission networks. The Swedish company was hoping to drive this in part with technologies it gained from its acquisition of London telecommunications vendor, Marconi, last year. Under the deal, Ericsson acquired Marconi's optical networking equipment, broadband access products and soft-switch products along with research and development operations.

The restructuring of Marconi wasgoing full speed ahead, Svanberg said.

Ericsson has so far cut about 350 employees and plans to cut another 1250 in the second and third quarters, he said.

The company also expects additional savings in 2007 by moving Marconi's supply-chain activities into other lower-cost countries.

He also noted new contracts with Telecom Italia Mobile, Telefonica, Vodafone Group and France Telecom.

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