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9 February 2018

SAS, Ericsson, show contrasting strategic IoT approaches

SAS (Statistical Analysis System) and Ericsson have both announced IoT wings this week, with Ericsson hoping that the new project can help halt five quarters of consecutive losses. For SAS, the new division is aiming to exploit new areas that SAS has previously been serving under its main core – which has customers including GE, Lockheed Martin, and Octo Telematics.

To some extent, these two announcements are a tale of two cities – a potentially excellent example of the contrasting motives for pursuing an IoT project. Based on the announcement, it seems that it would be pretty hard for SAS to mess up this opportunity, but for Ericsson, the IoT wing could be a matter of life or death (a very slow and drawn out death, admittedly).

For a company like SAS, which is positioned to move quickly in a high-growth market, the IoT is a gold-rush. For companies like Ericsson, encumbered by legacy products and services, the repositioning process is a very large headache.

Jason Mann, VP IoT at SAS, said “the potential for IoT analytics is tremendous, as hinted at by our 2017 IoT revenue growth of 60 per cent. The new SAS IoT division brings together R&D, marketing, product management, enablement, and channel sales. Its goal is to continue to develop, deliver and support powerful IoT Analytics software that covers the entire analytics lifecycle – batch, streaming and edge – all designed to help customers create value from their IoT investments.”

Managed well, the IoT division should be able to build on the demand for pre-built analytics services, aimed at businesses that don’t want to build a platform from the ground up, and would opt for an off-the-shelf option from the likes of SAS. Crucially, SAS will be competing against the likes of AWS, Microsoft, Google, Trilliant, and IBM, who would like to sell analytics services as part of their cloud-based PaaS offerings.

Many companies are already sitting on piles of data that they know they could be doing something with. For them, automation is a major prerequisite for analytics systems, as they have to find an easy way to get data into applications that can crunch the numbers. As part of the wider digital transformation trend, automation is making good progress in this regard – paving the way for analytics providers like SAS.

But these analytics are going to mostly be performed on data generated by existing business processes. The next phase will involve creating new data sources using IoT devices, and combining that data with other sources. For instance, a company might be able to run analytics tools on their retail databases, to find out how to better sell to their customers, but the next step would combine that insight with usage data from their products – to find out how those customers actually go about using them.

It is still very much early days for these sorts of opportunities, leaving the likes of SAS plenty of scope for expansion – trading on its good reputation and strong results. CMO Randy Guard said that “IoT and the recognition analytics combined with streaming data is the key to an emerging and large market.  Having devices connected is interesting, for sure – but it is not driving value.  The analytics both at the data center and at the edge (embedded in the device itself) is driving value. These devices range from consumer equipment and locomotives to wind turbines and connected automobiles. We are allowing decisions based on analytics to happen out on the edge where the data and touch point reside.”

However, for Ericsson, the new IoT division is not a natural expansion of a successful internal project. No, this is the company slashing yet more jobs as it tries to bring its costs down to counter falling revenue – as its core market is increasingly squeezed by its rivals. Its latest quarterly loss hit $2.5bn, growing from $34.5m in Q4 2016, mainly due to goodwill losses in its digital and media businesses – amounting to around $1.72bn.

Dressing up the news as a ‘strengthened focus on innovation,’ Ericsson unveiled the new Business Area Emerging Business (BEAB). One of the first things the new head of the BEAB, Åsa Tamsons, should consider is sorting that name out – roll off the tongue, it does not. However, we concede that there are more perhaps more pressing concerns to attend to.

The BEAB is a response to larger than expected Q4 losses – the fifth straight quarter in which Ericsson has lost money. It said that it expects its Chinese operations to continue to decline, which will hurt investors who had looked to the territory as a way to secure some short-term gains. Ericsson cut 10,000 jobs in Q4, bringing its staff numbers down to 106,000, and offloaded its Digital Media wing (for an undisclosed price). Notably, it couldn’t find a buyer for its Red Bee broadcasting assets.

Lower network equipment sales in India and Mexico, as well as most of Europe, were cited as contributing factors – with new 4G and 5G contracts with Verizon and Deutsche Telekom named as opportunities. Verizon is apparently planning on 5G rollouts in a handful of US cities by the end of the year, and an unnamed operator in China is also behind a market share gain for Ericsson (according to Reuters).

Q4 revenue was down 12% to around $7.2bn, under the financial community’s collective expectations. Consequently, its share price has fallen around 9%, and that share price has now fallen by around half, compared to 3-years ago. Pressure on new crisis CEO Borje Ekholm is building, with many commentators using the latest quarterly results as proof of their suspicion that he lacked the experience to be appointed to the role – replacing Hans Vestberg, who had focused on building up Ericsson’s media services.

So the new BEAB project will aim to build on promising IoT projects, selling the networking equipment and services to MNOs looking to add LTE-M and NB-IoT capabilities to IoT adopters. Ericsson’s biggest problem here is that there aren’t enough volumes for the MNOs to kick down the salesperson’s door for, meaning that from the IoT perspective, these low-power connectivity options (part of the LPWAN umbrella) are not generating enough interest to draw out big-buck contracts.

Ericsson (and its rivals Nokia and Huawei) face similar problems in the automotive sector, as the business models for adding connectivity to vehicles to enable next-gen IVI and self-driving capabilities are still not clear. Automotive won’t be a short-term fix, and neither will low-power IoT, for the likes of network infrastructure vendors like Ericsson.

Instead, it must continue its cost cutting, getting down to its bones, before prioritizing the contracts that promise to scale to much bigger opportunities as IoT adoption increases over time.