Ericsson aims to reduce costs by SEK 9 billion ($880 million) by the end of 2023
In preparation for a flat RAN market in the next three years, Ericsson announced that it intends to increase costs by SEK 9 billion (880 million an annual growth of 11% over the next three years for 5G RAN.
Seventy percent of the SEK 9 billion will come from the cost of goods sold, while the other 30 percent will come from other business areas, Ericsson said at its Capital Markets Day 2022 event.
According to the company, the flat market can be attributed to a “technology shift from the previous generation to 5G,” a shift that is still in its infancy, the company said. It also said it remains committed to growing its RAN market share from 39% outside of China by 1% each year by capitalizing on the opportunities of 5G and making further investments in its competitive portfolio.
Regarding cloud software and services, Ericsson told investors that its goal to “break even in full-year 2023” remains on track, as does its plan to make incremental improvements toward “long-term sustainable profitability.” In addition, the company continues to advance its corporate strategy focused on monetizing 5G and creating new revenue streams for operators.
In cloud software and services, Ericsson aims to address network managed services, business and operational support systems and finally core networks. “The goal is to break even in full year 2023, with incremental improvements towards long-term sustainable profitability.”
“Looking towards 2024 and beyond, long-term mobile infrastructure investments are being driven by underlying traffic trends and are expected to continue to evolve positively; this gives confidence in the longer-term development of the investments,” explained the seller.
With 5G still in its infancy, providers like Ericsson and Nokia see lower margins. As a result, they rely more heavily on patent fees to boost their profits. So for Ericsson, the ongoing lawsuit with Apple has dealt that revenue stream a not inconsiderable blow this year. However, the two recently settled their dispute and Ericsson now forecasts “significant potential for growth in IPR revenue” over the next 18 to 24 months. “The recently announced agreement puts Ericsson in a good position to pursue other currently unlicensed actors. Additionally, new areas such as consumer electronics offer another growth opportunity,” she added.
Ericsson also cited its goal of hitting the low end of its long-term goal of 15-18% EBITDA margin and generating pre-merger free cash flow of 9% to 12% of revenue by 2024.