L.M. Ericsson last week spelled out details of its new strategic direction, which includes an increased focus on Internet technologies to piggyback on its established position in the wireless and wireline telecommunications arenas.
The company’s new strategic focus stems from a growing demand for wireless and Internet-based technology. Wireless access in the future will include wireless local area networks in homes and offices as well as wireless access to the Internet, and Internet Protocol technology will provide the foundation for many of those applications, said the company.
The convergence of the telecommunications and data communications industries, as well as the increasing use of IP technology in telecom networks, is the driving force behind the company’s new focus. In addition, the datacom industry is beginning to adopt new standards of quality and availability that are common in telecommunications networks, said the company.
“The convergence of these two industries along with other industry trends is having a profound impact on our customers,” said Sven-Christer Nilsson, president and chief executive officer of the company. “What is perhaps less widely appreciated, however, is the impact on the marketplace of a third convergence factor-mobility.”
Bo Dimert, president and CEO of Ericsson Inc. and the new executive vice president of the North American region, said, “A wireless telephone has a distinct advantage. It is easy to move around and it is easy to use.”
Dimert said applications such as access to e-mail and the ability to respond to those messages using wireless phones is one application that could result from the convergence of Internet and telephony. Others include time-sensitive information such as stock quotes and location-based information such as hotel vacancies and nearby restaurants.
“It’s very hard to say what the killer application will be,” said Dimert, who noted that work still needs to be done to increase wireless usage in the United States.
Another trend driving the company’s new strategic focus is its belief that in the future the telecommunications industry will be dominated by 10 to 15 global operators, many of which Ericsson said it already has established relationships.
Nilsson initiated a strategic review of the company when he became CEO six months ago. The results of the review include a reorganization of the company into three business segments and aggressive growth forecasts for each segment.
“Based on this new direction, we intend to grow faster than the overall industry,” or by more than 20 percent a year, said Nilsson. The long-term growth strategies for each segment include a strong focus on high-growth areas.
For example, while Ericsson estimates the operator and service provider market is growing at a rate of 15 percent annually, wireless voice is growing at 20 percent, wireless data at about 80 percent and wireline data at about 25 percent. Ericsson’s targets for the segment include to maintain what it believes is its top position in wireless voice and to establish a similar position in wireless data. The company also said it expects to maintain a top-three position in wireless voice and establish a top-three position in the carrier-class, real-time IP segment of wireline data.
In the consumer products segment, Ericsson said it intends to emphasize wireless data, which it expects to grow by 30 percent annually in a consumer products market that is only growing at about 14 percent each year. The company said it will seek a top-two position in both wireless voice and wireless data within that segment.
In the enterprise market, which grew by 7 percent last year, Ericsson said it sees significant growth opportunities in wireless voice and data and intends to achieve overall growth of more than 10 to 15 percent annually long term. The company’s goals for the enterprise segment include a top-five position in wireline voice, a top-three position in wireline data solutions and a top-two position in the office segment of wireless voice.
“We believe that [Ericsson’s] announcement represents two significant events: 1) it addresses investor concerns for current and future Ericsson divisional and overall business growth fundamentals; and 2) addresses the broader health of several different segments of the telecom equipment market, both from a wireless and wireline perspective,” said a report by Credit Suisse First Boston’s Technology Group. “In short, we believe that confidence exuded in the press release and management conference call indicates that demand fundamentals remain very much in place, despite growing skepticism of declining operator spending outlays and an ostensibly mature wireless market.”
The report went on to say that Ericsson’s move to strengthen its datacom and IP technology development efforts could lead to broader opportunities for the company in the communications equipment arena and decrease its exposure to the volatility often found in the wireless equipment space.
Some analysts had expected Ericsson to bolster its Internet capabilities by making a major purchase like Northern Telecom Ltd. did with its purchase of Bay Networks. Instead, the company said it will focus on acquiring smaller and mid-sized companies in deals that will not be prohibitively expensive or dilutive of earnings.
That objective is characterized by the company’s recent announcement that it plans to buy Santa Barbara-Calif. based Advanced Computer Communications, which provides remote network access solutions for carriers, Internet service providers and corporate enterprises.
“The aim is to complement with certain technology, not necessarily to buy market share,” said Nilsson.
