Ericsson takes $690m hit as it gropes for a software strategy

10 January 2019 | Alan Burkitt-Gray

Cover

Ericsson is writing off the equivalent of $690 million as it reshapes its software business and ceases trying to sell its Revenue Manager suite.

The company said this morning that the $690 million cost includes $349 million in restructuring charges. Revenue Manager has earned zero revenue, the company admitted. This was Ericsson’s plan for a full-stack suite of business support system (BSS) software – IT to run telecoms operations.

“The strategy has not been successful and to date the full-stack Revenue Manager has not generated any revenues,” said the company in an announcement today, 15 days ahead of its full-year 2018 earnings report.

The company has been on an intensive programme to restructure and transform its operations, particularly since Hans Vestberg was fired as CEO in July 2016 and replaced in January 2017 by Börje Ekholm. Vestberg then became CTO of Verizon in the US and is now its CEO.

It has been offering transformation programmes to its customers in the telecoms industry – but with today’s announcement, it seems to have admitted that it hasn’t even managed to transform itself yet.

The company said this morning: “Ericsson’s focus on simplifying and stabilizing the business has during the three first quarters of 2018 resulted in stronger gross margins and a stabilizing top line. Focus has been on addressing underperforming areas while creating a strong platform for future growth. There has been solid progress in most portfolio areas.”

However, the digital services operation “has yet to complete its turnaround”, Ericsson said. Within that unit, the BSS area “is not showing satisfactory progress jeopardizing Segment Digital Services’ overall profitability target for 2020.”

As a result Revenue Manager will be chopped – even though the company was still promoting YouTube videos celebrating its benefits on its website this morning (pictured).

The website was still saying today that Revenue Manager is “a cloud-native, real-time, catalog-driven BSS solution for the digital future. It is 5G and IoT ready, enables omnichannel interactions and innovative ways to monetize new business across industries.”

The software was intended to “speed time-to-market, … improve the customer experience, … capture new opportunities … [and] set a new TCO [total cost of ownership] benchmark,” the company is still saying on the site.

Yet today the message is different. Ericsson has admitted that the TCO of Revenue Manager is high for Ericsson itself. “The anticipated customer demand for a full-stack pre-integrated BSS solution has not materialized,” said the company, in a long statement notably not attributed to any executive.

“Delays in product and feature development has also made the full-stack Revenue Manager less competitive. R&D resources in BSS have been focused on full-stack Revenue Manager, causing further delays in product releases of the established platform. In addition, certain complex transformation projects experienced delays and cost overruns.”

It added: “The company has now decided to pursue additional measures to speed up the restructuring of the BSS business, including its product and contract portfolio.”

Parts of Revenue Manager that have already been developed, Ericsson said. “Developed capabilities in Revenue Manager will be added to the established portfolio.”

However, there will be costs, including “customer compensation payments, provisions for project delays, and write-down of intangible assets”, said the statement. “The vast majority of the provision amount will impact cash flow, starting in 2019 and continuing over several years as projects are completed.”