Ericsson Shares Fall after Weak 1Q16, Restructuring Announcement
Focus on the 5G market
Ericsson (ERIC) ended 1Q16 with a negative cash flow from operating activities of -2.4 billion Swedish krona. However, this is a significant improvement on a YoY (year-over-year) basis. Ericsson has presented three focus areas for 2016. The first area relates to its Core business, in which Ericsson will capture business opportunities in 4G and extend its leadership in 5G.
Earlier this year, Cisco (CSCO) announced that it would collaborate with Ericsson (ERIC) and Intel (INTC) to develop the industry’s first 5G (fifth generation) router. As members of the Verizon 5G Technology Forum, Cisco, Intel, and Ericsson will partner with Verizon (VZ) to accelerate the pace of critical 5G innovations.
At the Mobile World Congress in Barcelona (EWP) in March 2016, Ericsson demonstrated its 5G leadership through 21 customer contracts.
Improvement in operating efficiency
The second focus area this year is to improve profitability in the targeted growth areas. Sales in these areas showed growth driven by the Professional Services segment. Ericsson will continue to focus on software sales and recurring business to increase profitability.
The third focus area for the firm is to improve cost efficiency to stay competitive across the entire business. Ericsson’s global cost and efficiency program has contributed savings of 0.5 billion krona in operating expenses in 1Q16. The firm might achieve annual savings of 9 billion krona in 2017.
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