Ericsson’s Digital Services business is a software-driven business that provides solutions for wireless carriers, including:
- Business support systems, handling billing, payments, customer management, and other business-related functions
- Operational support systems that enable operators to monitor, control, analyze and manage their networks
- Telecom core and IT Cloud services
How Has The Business Been Faring?
- Segment sales declined ~2% to SEK 38.1 billion ($4.1 billion) in fiscal 2018, accounting for ~18% of the total revenue mix
- Operating margins stood at -22.3% in FY’18
Why Is The Business Underperforming?
- The segment has been underperforming due to significant underperformance of BSS operations
- Lower sales of legacy products have also contributed to this underperformance, in addition to a focus on margin improvement rather than top line growth
- Past BSS strategy focused on large transformation projects, pre-integrated solutions, and full-stack revenue management. Customer demand for such solutions was lacking, while product development delays made the offering less competitive
- This led to market share losses and provisions and restructuring costs (~ SEK 6.1 billion or $640 million in 2018)
How Is Ericsson Looking To Turn Around The BSS Business?
- Ericsson has shifted its strategy from full-stack revenue management to fulfilling existing customer commitments
- The company will also invest further in the established Ericsson Digital BSS platform, which has an existing base of 350+ customers
- It is also exiting or renegotiating low-performing customer contracts, with 23 of 45 contracts addressed as of December 2018.
- The company also plans further headcount reductions and restructuring in FY’19
What’s The Outlook For The Digital Services Business?
- The company is targeting low single-digit operating margins by 2020, and 10–12% by 2022 excluding restructuring charges
- 5G-related upgrades and emergence of new use cases could drive spending in OSS/BSS-related services
- The OSS/BSS market is projected to grow at a CAGR of over 7% from 2018 to 2024
- Expanding 5G-ready and virtualized portfolio
View our interactive dashboard analysis on What Is The Outlook Like For Ericsson? You can modify key drivers to arrive at your own estimates for the company’s EPS and valuation. In addition, you can also see all of our data for Information Technology Companies here.
[“source=forbes”]