26
COMPANY PROFILE
of the firm’s R&D spend, he says, also
citing the firm’s multimedia unit as
well as its mobile platforms unit as
key areas for development. (Ericsson
retains a 50 per cent stake in handset
vendor Sony Ericsson, although it
doesn’t include the handset players
sales in its own figures.)
It is Ericsson’s continued focus on
research, says Sténson—16.5 per cent
of turnover is funnelled back into
R&D, and 20,000 employees soak up
that spend—that has enabled it to
retain a market leading position.
“When you are the market leader,
you have to act like the market leader.
You have to deliver the roadmaps and
technology earlier than anyone else.
And if you can be in the forefront all
the time then of course you’ll get paid
for that.” Part of the focus has been
streamlining the R&D process itself,
with the firm having cut lead times
by between 45 and 50 per cent over
the last five years, he says. Ericsson
decided not to wind down its 2G R&D
efforts when its competitors shifted
their attention to 3G and beyond,
says Sténson, a decision that has
reaped benefits.
Nonetheless, Ericsson is hell bent on
retaining its leadership as the industry
moves to the fourth generation. While
it will play in the WiMAX space if
necessary, the Swedish vendor clearly
believes LTE will dominate in the 4G
technology space. “It’s obvious that
the leaders in the operator world have
already decided to go with LTE,” says
Sténson. “For the first time ever we’re
Financials
SEK (bn) Q108 Q107 Change Q407 Change
Net sales 44.2 42.2 5% 54.5 -19%
Operating income 4.3 8.2 -47% 7.6 -44%
Net Income 2.6 5.8 -55% 5.6 -53%
seeing the same
pattern all over
the world. Verizon
has committed to
it, Vodafone and
Deutsche Telekom
have committed
to it and we know
that China Mobile
is going with LTE
also. WiMAX will
be a technology
used for certain
purposes, but not
for the masses.
Because the bigger
and more open
a technology like
���������������������
GSM can become—
and I think that’s
what will happen with LTE—the more
affordable it will be for developing
markets.”
Ericsson has built a substantial
IPR portfolio on the back of its R&D
work, says Sténson. He says that
Ericsson has more than 23,000 essential
patents to its name, and another
25,000 pending. “If you talk about
essential patents, nobody beats us.
Especially not in LTE. We are really
growing this in terms of revenue and
we think we should be valued from
that perspective,” he says.
One area in which Ericsson’s leadership
is undisputed is professional
services. It contributes one third of
turnover and by internal forecasts
its managed services unit—Ericsson
runs networks that serve almost
Source: Ericsson
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200 million end users—will grow
faster than the market CAGR of 11
per cent. “In a few years, the professional
services part of Ericsson will
be the largest division in terms of the
number of employees because it’s a
very people-intensive activity.”
On the administrative side of the
business, Ericsson is still cutting
numbers and the firm currently has
75,000 employees in 175 countries
around the world.
The infrastructure market is
shrinking, both in terms of available
contracts and the number of
players remaining in place to pitch
for them. By their own admission,
those companies that have been
formed by large scale consolidation
have had to dedicate enormous
amounts of management time to the
successful execution of their merger
strategies. Certainly Ericsson has
been able to keep its focus on its
products and services and their
development. This might well keep
it in a strong position relative to its
fellow Western players. Like them,
it’s biggest challenge will probably
come from the East. �
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