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Looking to the Future

Looking to the Future. Agenda. Company Overview Sweden’s Economic Environment Ericsson’s Performance and Future Shift to Services Sony-Ericsson Joint Venture Q&A. Company Overview.

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Looking to the Future

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  1. Looking to the Future

  2. Agenda • Company Overview • Sweden’s Economic Environment • Ericsson’s Performance and Future • Shift to Services • Sony-Ericsson Joint Venture • Q&A

  3. Company Overview • Started as a telegraph repair shop in 1876 and grew into the world’s leading maker of wireless telecom infrastructure equipment • Present in over 140 countries • Vallenberg family owns roughly 50% of market cap in Sweden • Ericsson supplies 19 out of 20 top service providers worldwide

  4. Sweden’s Macroeconomic Condition: Previous Years • Credible, rule-based policy supported growth of 4% per annum (1998-2000) • Riksbank’s inflation targeting regime; sound medium term fiscal framework • Growth driven primarily by technology sector • Sweden feels worldwide recession in 2001 • Telecom exports fell by one-third • A weak Krona helped mitigate export slowdown • Swedish economy exceeded Riksbank inflation target of 2%

  5. Sweden’s Macroeconomic Condition: 2003 • Krona has appreciated significantly • 30% against the Dollar • 20% against the Euro • Domestic demand has increased • Increased consumer confidence • Domestic economy has stabilized • Recently rejected adoption of Euro

  6. Factors leading to poor performance: • Recession • Large economies suffering economic slowdown resulted in slowdown in telecommunications demand • Ericsson’s customers ceased expansionary plans • Profits and sales have been dramatically decreasing since 2001 due to the slowing sales at the consumer level • Saturated industry • Main markets (US, Europe) have become saturated, ex. Houston, Atlanta have reached saturation levels of 74% • Sales have been replacement phones rather then new contracts  slow growth  providers purchase less network equipment

  7. Merrill Lynch Jun 2003 presentation

  8. 3G: Ericsson’s Future • Ericsson’s strategy assumes consumers will be quick to embrace new technologies • 3G is the new wireless standard • Allows for high-speed voice, data and multi-media communications • Worldwide 3G subscriptions expected to increase to 350 million by 2008

  9. Ericsson: Reaching for the Future • Major 3G rollout was delayed until 3rd quarter, 2003 • Consistent negative cash flows and limited demand contributed to this delay • Successful SEK29 billion stock issue improved companies financial position • Reduced debt to equity ratio

  10. Ericsson: Reaching for the Future • Cost cutting measures have been implemented to improve efficiency • Massive layoffs • Streamlining of R&D expenses • Ericsson signed lucrative contracts that allowed it to be the exclusive provider of 3G in certain areas • Holds over 40 contracts to supply leading service providers with 3G technologies • Expanded into Sri Lanka, China, Thailand, Lithuania in past few months

  11. Diversifying Interests • Ericsson is making a shirt towards providing services • Global Services Division becoming an ever-increasing part of Ericsson’s business • Three major service areas: • Advisory Services • Integration Services • Managed and Support Services • Global Services Division accounted for 30% of revenue in early 2003

  12. Sony Ericsson Joint Venture • 50/50 joint venture began in 2001 • Ericsson wants to capitalize on Sony’s strengths in consumer electronics, design, retail, and digital content • Sony sees advantages in Ericsson’s networking expertise and operator relationships

  13. Sony Ericsson Joint Venture • Venture was slow to see a profit for the first two years • Economic troubles and high capital outlays contributed to poor performance • Venture’s recent performance has greatly improved • Improved operating results and strong increase in sales so far in 2003 • Profit expected to be reached in 4th Quarter 2003 or early 2004 • Long term venture that can endure early hardships

  14. Overview • Ericsson, like most telecom companies, suffered setbacks during the global recession • New technologies and services have revitalized the company • Slow-starting SonyEricsson joint venture is starting to realize profits

  15. Questions?

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