Ericsson charts new course; sets strategic direction and growth targets
Ericsson today outlined its strategies which, by seeking to capitalize on the
growing demand for wireless communications and Internet-based technology will
position Ericsson for leadership in the next century. The company also
announced aggressive growth targets for its business segments.
"Ericsson is charting an entirely new course in the communications industry,"
says Sven-Christer Nilsson, the company's president and chief executive
officer. "We are combining our industry-leading position in wireless
communications with a strong commitment to IP technologies to aggressively
move our business forward. Based on this new direction, we intend to grow
faster than the overall industry - i.e. by well over 20 per cent a year."
Ericsson's plans grew out of a strategic business review that Sven-Christer
Nilsson initiated six months ago when he became CEO. That review also resulted
in a new, market-focused organization which the company announced on September
30.
Ericsson's new strategic direction is driven in part by the convergence of the
telecommunications and datacommunications industries. IP technology, which is
widely used in the datacom world, is increasingly being employed in telecom
networks. At the same time, the datacom industry is beginning to adopt the
standards of robustness and high availability that have long characterized
telecom or "carrier-class" networks.
Strategic Direction
"The convergence of these two industries along with other industry trends is
having a profound impact on our customers," Sven-Christer Nilsson says. "What
is perhaps less widely appreciated, however, is the impact on the marketplace
of a third convergence factor - mobility.
Wireless access is an increasingly powerful force that will infuse all areas
of communications. In the future, the wireless world will go well beyond
Ericsson's current mobile networks and will include everything from wireless
LAN's (Local Area Networks) in homes and offices to wireless Internet access.
Many of these applications will also be based on IP-technologies and will
require carrier-class networking know-how, Ericsson's core competence.
"The real winners will be the companies that can integrate all three
dimensions in their products and services and Ericsson is in a unique position
to do so. We are already the leader in wireless communications, and have deep
experience building carrier-class networks. Ericsson is now strengthening the
third element - IP technology - which will allow us to play a true leadership
role in the communications industry of the future. No other company is as well
positioned," Sven-Christer Nilsson says.
Ericsson is building out its product portfolio to integrate as many of these
capabilities as possible. IP router technology, for example, is now being
implemented in the company's next generation wireless systems. Cellular
technology is being exported to local area networks. And intelligent network
services have migrated to mobile systems.
"Bluetooth and Symbian are two other examples of ground-breaking ventures
we've initiated in this area", says Sven-Christer Nilsson. "In the future, you
will see much of this creative integration coming out of Ericsson."
Business Plans
Based on this strategic direction, Ericsson recently reorganized its business
into three customer segments: operators and service providers, enterprises and
consumers. The company has developed specific long term growth strategies for
each segment, focusing in particular on high growth areas within the segment.
The operator and service provider market, for example, is growing at a 15 %
annual rate but has high-growth areas in wireless voice (20 %), wireless data
(approx. 80 %) and wireline data (approx. 25 %).
Given its sizeable base, the wireless voice market shows particular promise.
The number of wireless subscribers has grown to 200 million in just 15 years.
Going forward, however, that base will increase to 800 million in one-third of
the time - just five years.
Total minutes of usage on wireless networks will increase almost nine-fold in
the same period - from 300 billion minutes today to 2,600 billion minutes in
2003. This will be driven by falling airtime charges, the rise of prepaid
calling plans and the growth of the emerging wireless data market.
Ericsson, according to Sven-Christer Nilsson, will maintain its number one
position in wireless voice and to establish a similar position in wireless
data. Ericsson expects to maintain a top three position in wireline voice and
establish a top three position in the carrier-class, real-time IP segment of
wireline data.
Ericsson is now introducing wireless Internet, for example GPRS and EDGE in
GSM and D-AMPS. Ericsson has also now set the standards for the third
generation mobile communication with WCDMA - the true candidate for a world
standard- both for Europe, Japan and the US. It is supported by over 85 % of
the digital mobile operators. The Wideband CDMA will provide 100 times higher
data rates than today's GSM and D-AMPS networks.
Ericsson's strategy in this latter segment is to leverage off its carrier-
class capabilities and to emphasize a systems approach.
"We will continue developing our internal competence in datacom and to pursue
a selective acquisition policy to add needed technology or channel access. We
describe our acquisition strategy as a "string of pearls" approach. It focuses
on small to mid-sized firms that are leading innovators. We think this is a
much smarter strategy than pursuing a "mega-merger," which would be
prohibitively expensive and dilutive of earnings. The aim is to complement
with certain technology, not necessarily to buy market shares," says Sven-
Christer Nilsson.
Ericsson is targeting an overall annual growth rate of at least 20 % in the
network operator and service provider segment.
The enterprise market is growing by just seven per cent a year but has
significant growth opportunities in wireless voice and data. Ericsson plans to
achieve overall growth in this segment of more than 10 - 15% long term by
developing Professional Services, maintain a top five position in wireline
voice, establishing a top three position in wireline data solutions and a top
two position in the office segment of wireless voice.
The consumer products market is growing 14% a year, a level Ericsson intends
to outperform, partly by putting emphasis on wireless data, which will grow at
an annual approx. 30 % rate. Some industry analysts have suggested that the
wireless data area will produce volumes greater than the PC market within the
next few years. Ericsson intends to improve its position in wireless voice to
one of the top two and is seeking a top two position in wireless data.
Ericsson is targeting an overall annual growth rate of at least 20 % in the
consumer segment.
"These are ambitious growth levels, but we are committed to achieving them",
Sven-Christer Nilsson says. "Our new organization will be of enormous benefit
in helping us do so. The new model provides for a stronger customer interface,
faster and more entreprenuerial product development and supply, more
transparent reporting procedures and stronger strategic direction setting.
With this model in place, we are poised not only for growth but for more
profitable growth in the years ahead."
Ericsson is a full communications supplier for network operators and service
providers, enterprises and consumers. With more than 100,000 employees in 140
countries, Ericsson is world leading in both mobile and fixed communications
solutions.
Uncertainties in the Future.
"Safe Harbour" Statement under the U.S. Private Securities.
Some statements in the press release are forward looking and actual results
may differ materially from those stated. In addition to the factors discussed,
among the other factors that may affect results are product demand, the effect
of economic conditions, exchange-rate and interest-rate movements, the impact
of competitive products and pricing, product development, commercialization
and technological difficulties, political risks in the countries in which the
Company has operations or sales, supply constraints, and the result of
customer financing efforts.
FOR FURTHER INFORMATION, PLEASE CONTACT
Lars A Stålberg, Senior Vice President, Corporate Relations,
Phone: +46 8 719 31 62 or +46 70 555 6066
E-mail: lars.stalberg@lme.ericsson.se
Pia Gideon, Pia Gideon, Manager External Relations
Phone: +46 8 719 2864 or +46 70 519 2864
E-mail: pia.gideon@lme.ericsson.se
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