Swedish kit maker does not expect to reach 12% operating margin until some point after 2020

Ericsson on Wednesday revealed that it does not expect to hit its sustainable operating margin target of 12% by 2018.

The Swedish kit maker said at its capital markets day that it does not expect to meet that goal until some point after 2020.

"We have plans in place for all segments that combined sum up to an operating margin of between 10–12% by 2020, but since there are execution risks in all plans and we start from a weaker starting point than originally planned for, we prefer to be cautious and commit to the lower end of the range," said Ericsson CEO Börje Ekholm, in a statement.

Ericsson blamed a weaker-than-expected radio network equipment market, the strengthening of the kronor versus the U.S. dollar, and "an even more challenging situation" in Digital Services – its virtualised networks division – than first thought.

"Beyond 2020, we will drive continued improvements and capture upsides from innovation and emerging business to reach our ambition of at least 12% operating margin for the group," Ekholm said.

Ericsson’s year-to-date operating margin is 3%.

The company also offered up an uninspiring revenue forecast.

It expects 2020 revenue to come in at 190 billion kronor (€19.52 billion)-SEK200 billion. That compares to year-to-date revenue – including preliminary and unaudited revenue in the current quarter – of SEK211 billion.

Ericsson has been hit hard by lower spending by operators on network equipment, as major LTE deployments have largely been completed.

Ericsson expects the addressable market for its Networks business to shrink by 2% next year and by 1% in 2019. It expects the market to be flat in 2020.

Earlier this year, Ericsson ramped up its savings target to at least SEK10 billion per year by mid-2018. 70% of the savings will be made in cost of sales, the remaining 30% will be made in general and administration expenses.

5G represents the next big opportunity for players like Ericsson to cash in.

"Even though we are not planning for significant 5G sales before 2020, we are convinced it will create value for our customers in their mobile broadband business, enabling them to manage very high traffic growth. But even more important, it has the potential to create new businesses and revenue streams for service providers based on use cases such as industrial applications," Ekholm said. "With the combination of products and capabilities that we have in Networks and Digital Services combined, we are well positioned to support our customers’ network evolution to 5G."