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
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