The CSP infrastructure market is undergoing a rapid shift toward software-driven and cloud-based service delivery infrastructures to cater to evolving digital market needs. This evolution is disruptive for traditional suppliers. Today Ericsson reported an operating loss of $ 1.4 billion as well as a decrease in sales by -11% YoY. Ericsson’s challenges are more than just technology related. They also relate to its market leadership and go-to market strategy.
Ericsson faces a long and painful overhaul after shrinking markets, tough competition and restructuring costs-underpinning a second major restructuring within 12 months. We see the announced restructuring moves as pre-emptive measures in terms of deep cost cutting initiatives, accompanied by deep organizational and structural changes to restore profitability.
Ericsson will place strategic efforts primarily on network, digital support solutions/cloud and IoT. Besides defending core competencies in 5G network rollouts, the company will emphasize digital services and cloud-based and virtualized network infrastructures, and OSS/BSS solutions that enable new digital value chains. Ericsson is looking to streamline its assets to provide viable full stack cloud solution to capitalize on digital market opportunities for CSPs and other vertical industries.
Ericsson also announced a strategic review of its IT cloud infrastructure hardware unit, as its focus shifts to software development for virtualized networks and OSS/BSS. IT cloud infrastructure hardware, such as data center solutions, is not part of the company’s traditional network equipment business. However, Ericsson is well positioned to take a leadership position as clients are looking for strategic partners delivering end-to-end software-driven, cloud-based and virtualized infrastructures and corresponding and services. This will provide the underlying connectivity and management infrastructure to capitalize on strategic market opportunities that future technologies such as 5G, M2M, IoT, cloud and multimedia hold.
Moreover, the announced strategic shift from a systems integrator approach to a platform-and-solutions-led approach in IoT, will allow Ericsson to exploit new market potential. Ericsson has the technology, resources and skills of delivering end-to-end infrastructure solutions. The decision to pursue an IoT platform and solutions-led approach will provide a viable migration path for Ericsson´s clients to commercialize IoT technology infrastructures and ecosystems at scale. Ericsson has the global client base to leverage its global assets and expertise at scale.
CSPs transform the way they create, manage and deliver digital services. Technology providers have to mirrors those profound changes in their solution portfolio and organizational structure. Ericsson must reinvent itself to remain relevant in tomorrow`s digital marketplace to find new ways to leverage core assets while simultaneously acquiring new technology skills. For Ericsson this means a stellar turnaround from a traditional network equipment provider toward a digital infrastructure provider that operates within IT, software design and cloud-service delivery value chains.
Ericsson is on the right track in terms of market vision and fine-tuning of strategic portfolio choices and technology investments. CSPs that embark on digital transformations projects expect infrastructure technology suppliers to cover the entire stack across virtualized network infrastructures, IT software and cloud data center and services.
However, to execute upon its new vision Ericsson needs to put in place a globally focused, decentralized operating organization with streamlined local service delivery and go-to-market amid competitive global marketplace challenges. If Ericsson follows through those announced strategic and operational changes it has a chance to restore profitability within 2018.
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