IoT Is a Way Out for Ericsson

If Swedish technology giant Ericsson is going to turn the leaky ship around, it's probably going to have to be with big new technology trends such as 5G and Internet of Things (IoT).

This morning, Ericsson announced that it continues to rack up huge losses and sales declines on the degrading production of its equipment and managed services business. Chief Executive Officer Börje Ekholm, who took over late in 2016, has announced an aggressive business restructuring that will include cutting costs as well as likely sales of some unprofitable units.

The company this morning said that special charges of 13.4 billion Swedish kronor ($1.5 billion) resulting from asset write-downs and restructuring contributed to the company reporting a net loss of SEK10.9 billion ($1.2 billion), compared with a net profit of SEK2.1 billion ($240 million) in the year-earlier period. Revenues fell by 11 percent, to SEK46.4 billion ($5.3 billion).

Ekholm, who was installed from the business world, will no doubt go about his work swiftly and surgically. He's announced that Ericsson's media business, which processes and streams video (from a prior Tandberg acquisition), is on the auction block. Other units will be jettisoned, and Ericsson officials said in interviews today that it will be looking to get out of unprofitable contracts in its managed services business, which builds networks for global service providers.

But Ericsson will need more than all that. The company, which is one of the world's largest suppliers of equipment to service providers, has never quite recovered since its handset business was eviscerated by Apple's iPhone and the telcos chose to go the route of reduced capital spending and equipment commoditization. Another headwind came when the bulk of the buildout of 4G LTE networks was completed. Ericsson has been lacking a "next big thing" to latch on to. What's next?

At this year's Mobile World Congress (MWC) show in Barcelona, Ericsson played up 5G and the Industrial IoT (IIoT), which happens to be the topic of Futuriom's premiere report. The problem with that is that 5G is many years away from providing any kind of revenue salve -- at least 2020 -- and Ericsson's vision in IoT has so far lacked energy -- unless you can get excited about a few networked Scania trucks.

CEO Ekholm has deep roots in Sweden's industrial community, so he could make progress with IIoT after several mind melds with leading business executives. IIoT presents a unique opportunity for Ericsson with its emphasis on connectivity, one of Ericsson's specialties.

Ericsson will have to pick its spots. As highlighted in our Ultimate IoT Report, there is no shortage of opportunities in IIoT: There's the LPWAN market, which networks devices and machinery with low-cost mobile communications; IoT cloud platforms, which connect, manage, and secure devices on the network; and a raft of potential business and analytics applications aimed at introducing efficiencies into a range of industries. The IIoT opportunity is seen in the trillions of dollars. If IIoT can save just 1 to 2 percent of costs in whole industries such as transportation, healthcare, and manafucturing, the return on investment (ROI) could range up to $10 trillion, according to some estimates by McKinsey.

Ericsson has some IoT products including the Ericsson Device Connection Platform. The company is also looking to evolve its cellular wireless technology into a platform that can address IoT with new wireless standards with the approach of "network slicing," in which the network can be virtualized and split up to allocate the mobile infrastructure to different applications with different needs. But the company will also have to make bets on new wireless and LPWAN standards for IoT, which include 5G, Narrowband (NB-IoT), and LPWAN technologies such as LoRa. And waiting for 5G should not be the plan.

This year will be a crucial year for Ericsson to sharpen its IIoT plans, as Ekholm gets out the knife for old, unprofitable divisions while at the same time pulls out his checkbook to fund R&D in new areas. Futuriom research shows promising growth in areas such as LPWAN and transportation telematics. These should be areas of focus in the future.

For a more detailed, professional analysis of the IIoT market, purchase our 50-page Ultimate Industrial Internet of Things (IIoT) Report, which covers a wide range of communications and cloud technologies that are being applied to businesses around the world to provide connectivity, analysis, automation, and optimization of a range of industrial applications.