Ericsson presents focused business strategy - Seite 3

Profitability and efficiency

In addition to the actions above, the company will continue our work to rationalize legacy portfolio and drive company-wide efficiency measures. Combined, these actions will establish a new and stronger earnings level for Ericsson.

Ekholm says: "While we will continue our work to take out cost at high pace with targets surpassing current ambitions, we will not guide on cost levels going forward as it is an isolated part of the profit and loss statement. With the actions announced today, and assuming stable market conditions, we foresee significant improvements already in 2018. And beyond that I am convinced that Ericsson, on a sustainable basis, can at least double the 2016 Group operating margin, excluding restructuring charges. But even more importantly, I think that we can deliver a return on capital employed that will create value for our shareholders."

Short term financial implications

As a consequence of the change in Group strategy, certain intangible assets including capitalized development within current segments Media and IT & Cloud will be impaired in Q1. Ericsson estimates the operating income impact of this in Q1 to SEK 3-4 b. with no impact on cash flow.

As a result of a planned higher pace in cost reductions, with current visibility we estimate restructuring charges for 2017 to amount to approximately SEK 6-8 b., compared to previous estimate of SEK 3 b, of which approximately SEK 2 b. in Q1.

Provisions related to events in Q1, 2017

Separately, provisions of an estimated SEK 7-9 b. will be required in Q1, triggered by recent negative developments related to certain large customer projects.

New company structure

The company also announces an organizational structure to support the long-term strategy.  A set of changes will be made to simplify the organization to increase efficiency and speed up time to market and customer responsiveness.

In addition, actions are taken to increase accountability and empowerment throughout the organization. Today the company has significant common costs that are allocated. These resources will gradually be moved out to business and market areas.

The new organization and P&L structure is built on a simplified model, combining products and services where relevant into solutions to increase internal efficiency and better reflect customer needs and requirements. The new structure will have three Business Areas, Networks, Digital Services and Managed Services as well as two separate units for the Media business, Ericsson Broadcast & Media services and Ericsson Media Solutions. The current 10 regions are reduced to five Market Areas, all represented in the Executive Team. The new Market Area set up will align better to our global customers and reduce the number of interfaces for them.