Ericsson splits network unit as revenues drop

Swedish vendor Ericsson has today announced it has split its networks unit, following reports yesterday that it missed its Q1 sales and profits targets.

Ericsson has divided the unit into two separate entities – business unit Radio and business unit Cloud & IP - which the company claims is designed to accelerate transformation and support growth.

Hans Vestberg, president and CEO at Ericsson, said that Ericsson’s business logic and position is different for the two areas.

“Radio is the foundation of Ericsson’s technology leadership and we are the undisputed market leader, same size as number two and three together,” he said.

“In the cloud and IP space, which are vital for the evolution to 5G, we have made significant progress but are still a challenger – in a transforming market we will now intensify our work to capture opportunities in virtualisation cloud.”

While Ericsson has been making way with the development of its 4G technology – having signed partnership with DNA, DTAC and Far EasTone in April alone – market watchers say that the company has failed to offset the ending of older projects.

Ericsson’s Q1 earnings fell short of analyst’s mean forecasts of 3.5 billion Swedish crowns, coming in at just 2.6 billion.

"I am generally a bit pessimistic towards Ericsson," said Inge Heydorn, a fund manager at Sentat Asset Management with no shares in the company.

"I don't think sales will come back. I think it's a tough market."

Ericsson’s management will also be having a reshuffle as a result of the unit split, and Johan Wibergh – existing head of business unit Networks who will be assuming the role as head of segment networks – is optimistic about the changes at the company.

“I am looking forward to support both business units to a leading position, continuing to secure that we capture synergies while also assuming a more corporate role,” he said.

“A top priority for me initially is to ensure that we keep momentum in current business while we make the transition.”

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