Ericsson CEO Sketches Strategy

Telefonaktiebolaget LM 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, Ericsson Chief Executive Officer Carl-Henric Svanberg said Wednesday.

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

He was more bullish on future growth, which he said will 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 500 million euros (US$639 million) to 600 million euros 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 is also going to drive the need for transport and transmission networks. The Swedish company is 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 is “going full speed ahead,” Svanberg said. Ericsson has so far cut about 350 employees and plans to cut another 1,250 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.

The company delivered its financial and technological update during Ericsson’s Capital Markets Day in New York City. The event was timed to coincide with the arrival of the Ericsson yacht in the Volvo Ocean Race round-the-world sailing competition. Swedish King Carl XVI Gustaf was also in town for the festivities and sat in on Ericsson’s day-long executive presentations.

-Shelley Solheim, IDG News Service

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