Excel in core business progress. Telefonaktiebolaget LM Ericsson Capital Markets Day 2015 Page 1

Transcription

1 Excel in core business progress Telefonaktiebolaget LM Ericsson Capital Markets Day 2015 Page 1

2 Introduction to Core business Rima Qureshi Head of Strategy Telefonaktiebolaget LM Ericsson Capital Markets Day 2015 Page 2

3 Mobile subscriptions 9.1 billion 5.3 billion 7.4 billion 2G 5G 2G 3G 2G 4G 3G 3G 4G Continued growth in mobile subscriptions, long technology cycles Telefonaktiebolaget LM Ericsson Capital Markets Day 2015 Page 3

4 mobile data traffic ,200 PB/month (equivalent to ~400 million 1.5h HD movie views per month) Laptops, Routers, Tablets x ,100 PB/month Smartphones x Explosive growth in mobile data traffic continues, driven by video and smartphones Telefonaktiebolaget LM Ericsson Capital Markets Day 2015 Page 4

5 Connections (billion) Connected devices years 5 billion connected people 15 years 26 billion connected devices Our vision 50 billion connected devices years 1 billion connected places Accelerating pace of change, Internet of Things transformation ongoing Telefonaktiebolaget LM Ericsson Capital Markets Day 2015 Page 5

6 industry trends Continued strong demand for mobile broadband Video and smartphones drives demand Continued network build out for app coverage and capacity Internet of Things evolution accelerating Evolution to 5G addressing industry requirements Industry transformation based on mobility, broadband and cloud Transformation towards all IP networks IP on all layers; 4G, 5G, Wifi, fiber Virtualization of networks and IT Digitalization of operators and enterprises IT system modernization Need for transformation service partners Telefonaktiebolaget LM Ericsson Capital Markets Day 2015 Page 6

7 MARKET size and GROWTH CORE AND TARGETED AREAS Future/ Emerging Cloud Targeted Areas Market size 2014: ~ USD b. CAGR : ~10% IP Networks OSS&BSS TV & Media Present/ Large Radio, Core & Transmission Telecom Services Industry & Society 1 Core Areas Market Excel Size in core 2014: business ~USD b. CAGR : ~1-3% Telefonaktiebolaget LM Ericsson Capital Markets Day 2015 Page 7 2 Establish leadership 3 Expand business in in targeted areas new areas This slide contains forward-looking statements. Actual result may be materially different. Targeted Areas include Industry&Society. Both Targeted and Core Areas have a slightly wider definition than our traditional Market Outlook

8 Strategic direction 2015 excel in core business Market position Market leader Future/ Emerging IP Networks Cloud OSS&BSS TV & Media Competition Strategy & objectives Few large equipment and services vendors Improve earnings in core, lead and innovate Present/ Large Radio, Core & Transmission Telecom Services Industry & Society Key success-factors Drive performance and efficiency, leverage scale and maintain leadership 1 Excel in core business 2 Establish leadership 3 Expand business in in targeted areas new areas Telefonaktiebolaget LM Ericsson Capital Markets Day 2015 Page 8 This slide contains forward-looking statements. Actual result may be materially different. Targeted Areas include Industry&Society. Both Targeted and Core Areas have a slightly wider definition than our traditional Market Outlook

9 Telefonaktiebolaget LM Ericsson Capital Markets Day 2015 Page 9

10 Core business: Telecom services Magnus Mandersson Executive Vice President Head of Global Services Telefonaktiebolaget LM Ericsson Capital Markets Day 2015 Page 10

11 Portfolio The Services Journey Technology leadership Technology & services leadership ,000 employees 65,000 employees SEK b Services sales Industry verticals Operator IT: systems integration, consulting Network and IT managed services Networks: Rollout, support, design & optimization From 25% to 44% of Ericsson s sales Broader services portfolio leveraging our global scale Telefonaktiebolaget LM Ericsson Capital Markets Day 2015 Page 11

12 Telecom Services Market USD b. 306 Market share % 24% % 25% % 25% 27% % 26% CAGR % 27% 55% 29% Operator internal services spend Current addressed market (Operator external services spend) Consulting, Systems Integration & Customer Support Local providers Local service providers 65% 12% Ericsson Key providers 8% 7% 9% 7% 9% 7% 9% 6% 9% 7% 9% 6% 3% 1% 9% 7% Managed Services Network Rollout Continued momentum, 3 5% CAGR for Telefonaktiebolaget LM Ericsson Capital Markets Day 2015 Page 12 This slide contains forward-looking statements. Actual result may be materially different. Source: Ericsson

13 Services Market outlook USD b. Portfolio Rank/M-share Broadcast & Media Services OTT Managed Player, media management, playout, access services, content discovery, Piero, creative services #1 7 10% Industry & Society Focus on utilities, transport and public safety Using our existing portfolio, complemented by partnerships and selected acquisitions Emerging Operator IT Cloud transformation, IT managed services, consulting & transformation services, systems integration, application development & maintenance Top 4 3 6% Operator Networks Network design & optimization, network rollout, customer support, Managed services # % Operator IT: Systems integration OSS/BSS, systems integration TV&Media, consulting, managed services IT Operator Networks: Support, network design and optimization, network rollout, managed services network, systems integration Core/IP * Only services within Utilities, Transport, Public Safety SEK/USD rate used and 2018: 6,73, 6,52, 6,89, 8,10 Total addressed services market CAGR : 6 8% Telefonaktiebolaget LM Ericsson Capital Markets Day 2015 Page 13 Source: Ericsson Strategic Forecast

14 Global Services Strategy Operator IT GROW AND SCALE Targeted area: OSS/BSS Consulting and systems integration IT managed services Industry domains BUILD AND LEVERAGE Targeted area: Industry and society Broadcast and media services Operator networks EXTEND AND EXCEL Network design & opt. Customer support Network rollout Network managed services Telefonaktiebolaget LM Ericsson Capital Markets Day 2015 Page 14

15 Network Rollout Network Rollout DESIGN BUILD & INSTALL INTEGRATE Project Management TUNE Break-even in Q3 Efforts to increase profitability continue Target: positive margins, low single digit >300k sites annually Improved profitability due to: Industrialization - Optimized tools and installability - Standardization and remote delivery - Global reuse of skills and experience Conclusion of modernization projects Customer benefits: Reduced lead times & lower capital employed Shorter time to revenue Improved predictability Telefonaktiebolaget LM Ericsson Capital Markets Day 2015 Page 15

16 Services for networks Customer Support Network Design & Optimization SUPPORT OPTIMIZE >2.5 million sites Market drivers: Growth of installed base Exponential traffic demand Application performance Network complexity 2G/3G/4G Customer Support: Higher margins Focus on network-level support Mature market segment Network Design & Optimization: Good margins Focus on network performance Emerging market segment Vendor-agnostic Maximize ROI from growing installed base Telefonaktiebolaget LM Ericsson Capital Markets Day 2015 Page 16

17 Managed Services Growing demand for outsourcing Broader portfolio for telecom Network performance, End-user experience New offerings for vertical markets SEK b. Net sales CAGR 14% 30 Managed Services Market leader 300 contracts High renewal rate Stable profitability Good return on capital employed Recurring revenues 100 countries 35,000 insourced employees Vendor-agnostic Networks & IT Telefonaktiebolaget LM Ericsson Capital Markets Day 2015 Page 17 This slide contains forward-looking statements. Actual result may be materially different.

18 Service Delivery Unrivaled service delivery organization 4 Global Service Centers, incl. Global NOCs Combined global and local resources 65,000 professionals and 20,000 sourced Pioneering large-scale service delivery Centralize for scale and skill Standardize for efficient and predictable delivery Automate for speed and next-gen. services 50% global delivery (target) 42% 50%* *Target: 2015 Telefonaktiebolaget LM Ericsson Capital Markets Day 2015 Page 18 This slide contains forward-looking statements. Actual result may be materially different.

19 Cisco and our services offering Strengthened services offering New business in Consulting & Systems Integration, Manages Services and product related services Leveraging Cisco IP networking equipment and expertise Further leveraging on our global Service Delivery organization Services engagements IP transformational (Reseller): product-near services leveraging our IT/IP services IP and IT managed services : offered on Cisco solutions for new and existing contracts Customized two-way services: design tailor-made solutions and exchange of services Services innovation Investing in new global labs to develop IP services capabilities and solutions Establishing a joint services innovation team for co-creation Driving profitable growth Telefonaktiebolaget LM Ericsson Capital Markets Day 2015 Page 19

20 Key takeaways Services for networks Break-even in Network Rollout, good margins in customer support Managed services Growing demand, broader portfolio, telecom market leader Service delivery Unrivaled service delivery organization, driving global delivery Clear market leader in telecom services Telefonaktiebolaget LM Ericsson Capital Markets Day 2015 Page 20 This slide contains forward-looking statements. Actual result may be materially different.

21 Telefonaktiebolaget LM Ericsson Capital Markets Day 2015 Page 21

22 Hans Vestberg CEO and Head of Networks Telefonaktiebolaget LM Ericsson Capital Markets Day 2015 Page 22

23 Networks Two business units to enable growth and profitability Arun Bansal Business unit Radio Strengthen mobile market position and address new market segments by driving innovation and cost efficiency Anders Lindblad Business unit Core & IP Capture opportunities with virtualization and cloud for the IP and core portfolio based on number one position in telecom core networks Progress and execution Ericsson Radio System launched Good progress in R&D efficiency and effectiveness Traction to secure leadership position in 5G and Internet of Things Progress and execution Emerging modernization opportunities in Telecom Core and growth in IP & Cloud Transformation for improved efficiency & effectiveness progress as planned First release of Ericsson Cloud Platform and substantially broadened IP e2e portfolio Networks operating margin double-digit last 8 out of 9 quarters excluding restructuring Telefonaktiebolaget LM Ericsson Capital Markets Day 2015 Page 23

24 Core business: Radio, Core and Transmission Arun Bansal Head of Business Unit Radio Telefonaktiebolaget LM Ericsson Capital Markets Day 2015 Page 24

25 Agenda Radio, Core and Transmission - update Market outlook Strategic focus areas Priorities going forward Telefonaktiebolaget LM Ericsson Capital Markets Day 2015 Page 25

26 Agenda Radio, Core and Transmission - update Market outlook Strategic focus areas Priorities going forward Telefonaktiebolaget LM Ericsson Capital Markets Day 2015 Page 26

27 Execution on priorities Double-digit operating margin in 8 out of 9 latest quarters* R&D efficiency strengthened Cost effectiveness improved Ericsson SW model being deployed New radio portfolio launched More frontrunner operators emerging Telefonaktiebolaget LM Ericsson Capital Markets Day 2015 Page 27 * excluding restructuring

28 Agenda Radio, Core and Transmission - update Market outlook Strategic focus areas Priorities going forward Telefonaktiebolaget LM Ericsson Capital Markets Day 2015 Page 28

29 market outlook NETWORKS KEY SEGMENTS USD b CAGR* Market share 2014 Key segments 1-3%** Key segments 23% Core 2-4% IP & Transport 2-4% Radio 0-2% Market driven by VoLTE, Wi-Fi calling and IoT growth Consumer and enterprise applications enabled by NFV and Cloud Growth in video traffic, differentiated performance and IoT IP on all layers & SDN Traffic growth drives app coverage investments New use cases within indoor, IoT and broadband access *CAGR impacted by currency effects. Growth unevenly distributed over the years Telefonaktiebolaget LM Ericsson Capital Markets Day 2015 Page **Key Segments exclude: Fixed access, selected site equipment, cables & interconnect, OPTO/SDH, Service Assurance, Telecom Cloud moved from Other to Key Segment Core. Network equipment CAGR : 1-3%. Key segments is a subset of Network equipment. This slide contains forward-looking statements. Actual result may be materially different.

30 Broadband access coverage 2015 Access speed [Mbps] Cellular potential 3G coverage 2015 Cable Fiber access LTE coverage 2015 DSL Narrowband copper Telefonaktiebolaget LM Ericsson Capital Markets Day 2015 Page Million households in the world

31 Agenda Radio, Core and Transmission - update Market outlook Strategic focus areas Priorities going forward Telefonaktiebolaget LM Ericsson Capital Markets Day 2015 Page 31

32 Strategic focus areas Mobile market growth Grow current market Performance leadership Increase market share Indoor Extend into new market 5G Prepare for next market Telefonaktiebolaget LM Ericsson Capital Markets Day 2015 Page 32

33 FOCUS AREA Mobile market growth Telefonaktiebolaget LM Ericsson Capital Markets Day 2014 Page 33

34 User scenarios 2GB Stream video* 30 min/week Browse 15 websites/day Download 5 apps/week Send/receive 30 s/day 6GB Average data traffic per active smartphone (GB/month) Stream video* 20 min/day Browse 15 websites/day Download 15 apps/week Post 15 photos/day Telefonaktiebolaget LM Ericsson Capital Markets Day 2015 Page 34 0 North America Western Europe Asia Pacific Latin America Middle East and Africa Central and Eastern Europe App coverage demands drive need for continuous investments in network performance *Any type of video streams (YouTube, embedded clips, )

35 Telefonaktiebolaget LM Ericsson Capital Markets Day 2014 Page 35

36 Frontrunner operators turn data growth into revenue growth Frontrunner operator: Revenue growth > 5% Positive EBITDA Non-voice revenue > 25% Telefonaktiebolaget LM Ericsson Capital Markets Day 2015 Page 36 Source: Ericsson Mobility Report, Mobile Business Trends Appendix, Nov 2015

37 FOCUS AREA Performance leadership Telefonaktiebolaget LM Ericsson Capital Markets Day 2014 Page 37

38 Radio requirements multiplying Three main requirements driving transformation Multi-standard now Multi-band and more on the way Multi-layer is becoming the norm 5G LTE WCDMA/HSPA GSM/EDGE 5000 MHZ 3500 MHZ 2600 MHZ 1800 MHZ 800 MHZ CA FDD/TDD R&D scale and investments needed to support increasing complexity Telefonaktiebolaget LM Ericsson Capital Markets Day 2015 Page 38

39 Mobile broadband drives core network momentum 45+ virtual IMS/EPC engagements New customer segments MBB 130+ live EPC Ericsson networks Wi-Fi calling 11 live networks 9 Ericsson VoLTE 30+ live networks >50% Ericsson New virtualized capabilities New services Telefonaktiebolaget LM Ericsson Capital Markets Day 2015 Page 39

40 Our Performance leadership Leader in Core networks World s most competitive Radio portfolio Ericsson #1 in MSS Strong growth in MBB drives EPC sales #1 in EPC #1 in UDM 11 Wi-Fi Calling, Ericsson supports 9 #1live in VoLTE/IMS Radio System 30+ VoLTE, Ericsson supports >50% #1 in 2G, 3G & 4G and selected by the world s 10 largest LTE operators R&D strategy efficiencyremains: R&D Modularization Lean & Agile Continued focus+on modularization, World leading and TTM virtualization and productivity Lean & Agile has been at the improvement forefront of rolling out lean Ericsson Lead time: 15 20% & agile development methodology in the telecom Where implemented, lead time sector. Ericpol: Enhancing capacity andis better than top strengthen quartile efficiency McKinsey Benchmark Q Telefonaktiebolaget LM Ericsson Capital Markets Day 2015 Page 40 #1 in Mobile Complete end-to-end portfolio Key network functions virtualized (vepc, vims, voss, vbss) of the Supporting a majority - readyfirst for commercial commercial use world s VoLTE networks Innovation continues Value packages New SW model to improve performance, simplicity & predictability Networks Software 15a

41 Focus Area Indoor Telefonaktiebolaget LM Ericsson Capital Markets Day 2014 Page 41

42 Radio Dot Live countries operators Indoor market update Other developments Wi-Fi calling for residential and small enterprise Pico RBS for 3G/LTE/Wi-Fi in commercial operations Telefonaktiebolaget LM Ericsson Capital Markets Day 2014 Page 42

43 Indoor opens up alternative Go-to-market models VARS & SYSTEM INTEGRATORS OPERATORS PROPERTY OWNERS, REAL ESTATE MGMT BUILDERS Telefonaktiebolaget LM Ericsson Capital Markets Day 2015 Page 43 VARS: Value Added Resellers

44 Focus area 5G Telefonaktiebolaget LM Ericsson Capital Markets Day 2014 Page 44

45 5G to be built on existing 4G network SUSTAINABLE SECURE 5G requirements Extreme & Diverse 5X Lower latency 1000X Mobile data volumes 10X Battery life X End-user data rates X Connected devices Critical communications <5ms E2E delay % transmission reliability 500 Kmph relative velocity Common network Dynamic & Secure Network slices Massive communications >10 years battery lifetime >80% cost reduction 20dB better coverage Telefonaktiebolaget LM Ericsson Capital Markets Day 2015 Page 45

46 firsts on the road to 5G LTE-LAA DEMO DEVICE CONNECTION PLATFORM ERICSSON RADIO SYSTEM DUAL CONNECTIVITY LTE-5G INDOOR/LTE-U SOFTWARE 16A 5 GBPS THROUGHPUT ACCELERATING IOT SOFTWARE 16B 5G NETWORK SLICING TECHNOLOGY MULTIPOINT CONNECTIVITY WITH DISTRIBUTED MIMO LTE LEAN CARRIER 12 publicly announced 5G MoU Telefonaktiebolaget LM Ericsson Capital Markets Day 2015 Page 46

47 Agenda Radio, Core and Transmission - update Market outlook Strategic focus areas Priorities going forward Telefonaktiebolaget LM Ericsson Capital Markets Day 2015 Page 47

48 priorities going forward Grow faster than the market with double digit margin Continued focus on commercial excellence, operational efficiency and cost control Strengthen performance leadership with our portfolio Establish leadership position and grow the Indoor & Small cell market Secure leadership position in IoT and 5G Telefonaktiebolaget LM Ericsson Capital Markets Day 2015 Page 48

49 Telefonaktiebolaget LM Ericsson Capital Markets Day 2015 Page 49

50 Core business summary Jan Frykhammar CFO Telefonaktiebolaget LM Ericsson Capital Markets Day 2015 Page 50

51 Profit improvement operating margin illustrative Build success in targeted areas Monetize footprint 7% Efficiency improvements 2014 Actual 2020 Cost Sales 3 building blocks driving towards continued yearly incremental improvements Telefonaktiebolaget LM Ericsson Capital Markets Day 2015 Page 51 This slide contains forward-looking statements. Actual result may be materially different.

52 LTE business cycles Mobile infrastructure Population coverage 14X Video traffic 36 Exabytes Capacity (expansion phase) Upgrade, densification, capacity increase Small cell deployments Shorter order cycles Accretive to company gross margin ~75% ~40% ,5 EB Coverage (initial phase) Break-in and green field Open bidding More hardware and rollout services Dilutive to company gross margin Higher capital tied-up Network Rollout lag Network sales ~2-3 quarters Coverage driven by LTE rollout Capacity driven by traffic increase Telefonaktiebolaget LM Ericsson Capital Markets Day 2015 Page 52 This slide contains forward-looking statements. Actual result may be materially different.

53 Profitability business model Managed services A. Transition B. Transformation C. Optimization and upselling Current contract mix ~25% ~75% Ericsson Managed Services global footprint A B C Years Optimize and shorten transition and transformation Industrialize and evolve contract Footprint in Managed Services enables growth in all segments Telefonaktiebolaget LM Ericsson Capital Markets Day 2015 Page 53 This slide contains forward-looking statements. Actual result may be materially different.

54 Segments Financial structure NETWORKS SUPPORT SOLUTIONS GLOBAL SERVICES Sales Hardware and software Mainly software Various services CoS Variable Variable Fixed Variable Gross margin% Fixed Fixed Fixed R&D Mainly fixed Operating margin% SG&A WC Mainly fixed Different financial structures, similar returns Telefonaktiebolaget LM Ericsson Capital Markets Day 2015 Page 54 Financial structure comparison in % is illustrative

55 KEY TAKEAWAYS Important building block for improved profitability Monetize footprint Coverage driven by LTE rollout Capacity driven by traffic increase Strong global footprint in managed services with more than 300 contracts running Telefonaktiebolaget LM Ericsson Capital Markets Day 2015 Page 55 This slide contains forward-looking statements. Actual result may be materially different.

56 Telefonaktiebolaget LM Ericsson Capital Markets Day 2015 Page 56