We tried to dig into the Ericsson results this week to see if its claims that its OSS/BSS division was doing rather well stood up, taking it firmly into the Faultline space of pay TV operators and broadcasters.
When Faultline talked to Ericsson a week earlier we formed the impression that most of its profit improvements were down to reorganizations and cost cuts, rather than from any organic growth. A suggestion which was met with a shake of Ericsson heads and a promise that next week at the results we would see that heavy investment in OSS/BSS had paid off.
Ericsson’s Q4 and full year 2015 results report improvements in its two Professional Services and Support Solutions business lines, of which Ericsson says its OSS/BSS business plays a part. Professional Services reported net sales for 2015 of $9.55 billion, up 8% from 2014’s full year results, and operating income of $1.12 billion, up 10% from the previous year. Support Solutions reported 2015 net sales of $1.75 billion, an increase of 40% from 2014, and operating income of $180 million.
Results for Ericsson’s OSS/BSS Agility Suite simply were not reported separately, but Ericsson has said repeatedly that it won 66 significant consulting and systems integration contracts in OSS/BSS, IP, service delivery platforms and data center build projects, for full year 2015. However, during Ericsson’s OSS/BSS telebriefing in January, we were told that its Agility Suite landed over 100 new deals in 2015, so presumably some of these were not what it calls “significant.”
So while Ericsson saw growth in OSS/BSS business during 2015, is it actually making money on it? That’s unclear.
Ericsson says its Professional Services business saw strong developments in Latin America, mainly relating to transformation projects in OSS/BSS – most notably the digital transformation deal with Entel Chile. Again this is a bit late to market, given that most of the high paying parts of the world have already managed their analog to digital transition.
The Chilean telco selected Ericsson’s OSS/BSS services as part of its transition towards becoming a digital telco and expanding its services across Chile and Peru, after it acquired the operations of Nextel Peru in November 2014 – so hardly a 2015 deal. Which is a problem – Ericsson only seems to be able to speak about deals that it has already completed, not just been awarded.
Ericsson also says it saw growth in Northern Europe and Central Asia, due to the development of TV & Media and OSS/BSS, driving sales growth in Support Solutions. As well as network optimization and OSS/BSS transformation projects in South East Asia and Oceania driving growth in Professional Services and Support Solutions in the region.
Overall, Ericsson says that sales in OSS/BSS “developed favorably”. It claims that due to the growth of mobile broadband, operators are driven to transforming their OSS/BSS systems as a way of monetizing the data growth while at the same time managing the increased complexity. Sales in professional services increased by 17% QoQ, and Professional Services operating margin was flat YoY.
Ericsson’s TV & Media business recovered in Q4, with strong sales in North America – it says that two important TV & Media agreements were announced in North America in the second half of the year, and it is the increasing sales in its TV & Media sector which is largely driving growth in its Support Solutions segment.
The Ericsson and Cisco alliance was a big strategic announcement back in November, combining Ericsson’s dominance in the wireless sector and Cisco in the IP segment. Nothing has been announced in the way of progress since its original vague plans to partner on smart city development – Ericsson’s financial report just repeats what we already knew, but does say it expects to start reaping the financial rewards of the partnership this year.
The partners claimed that this announcement was not a reaction to other mergers or collaborations, such as rival Alcatel-Lucent merging with Nokia, and defended accusations that the move was rushed by telling us that negotiations began a year before the announcement was made. Ericsson Chief Executive Hans Vestberg said more work is needed on the Cisco partnership to align product ranges and marketing strategies.
Ericsson managed to meet market forecasts thanks to its recent cost cutting and company reorganization program, which saw it slash 2,200 jobs in Sweden in Q1 2015, and 1,000 more in Q3. The Swedish telco equipment vendor saw quarterly net sales increase 8.2% to $8.6 billion from $7.95 billion in 2014. Net sales for 2015 were $28.86 billion, of which networks made up $14.46 billion, global services $12.62 billion, and support solutions $1.75 billion. Operating income increased by 75% from $1.96 billion in 2014, to $2.55 billion in 2015. Ericsson also signed a global patent license agreement with Apple last year, which it says contributed to growth in IPR revenues and helped increase net profit by 67% to $827 million in Q4.