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How Ericsson Views Its Digital Services Business

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Sales goal for 2020

Ericsson (ERIC) has estimated that its Digital Services segment could generate between 42 billion and 44 billion Swedish kronor in 2020, with an operating margin in the low single digits. But this segment has posted an operating loss in 2017.

The firm aims to improve customer value through digital engagements, automated operations, and programmable networks. Ericsson also wants to provide a software-led approach with industrialized service delivery and lead the transformation of service providers to cloud-native architectures.

Notably, service providers such as T-Mobile (TMUS) in the US (SPY), Entel and Nextel in South America, Zain KSA in Africa, and VNPT in Vietnam are transforming monetization and digitalizing customer engagements. Meanwhile, Vodafone (VOD), NTT DoCoMo, Telstra, and Telefonica are virtualizing core networks to automate firm operations.

Growth and stability

Ericsson has outlined a turnaround strategy to improve its Digital Services business performance. It has identified contracts that are not aligned with its long-term goals and plans to exit or conclude some of them in fiscal 2018.

Ericsson aims to improve profitability by increasing off-shore projects and enhancing project performance, automation, and pre-integration. Ericsson has targeted optimizing SG&A (selling, general, and administrative) expenses in its shift toward a new operating model.

Similar to Cisco Systems (CSCO), Ericsson has also targeted growth in recurring revenues over the next few years.

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