September 18, 2014 --Ericsson (NASDAQ:ERIC) today announced it will discontinue future development of modems and shift parts of resources in modems to radio network R&D to better capture growth opportunities in this area. The change in strategy for modems comes as the company completes its previously communicated evaluation of the future of the modems business.
In order to capture opportunities in radio networks, especially within small cells, energy efficiency and M2M, Ericsson has an immediate need to increase its R&D resources by approximately 500 people. Parts of the Modems organization have a relevant R&D competence base to support this growth.
Ericsson took over the LTE thin modem operations as part of the breakup of the joint venture with STMicroelectronics in August 2013. Since then, the modem organization has focused on bringing the first devices integrating an Ericsson modem on the market. This was achieved in August 2014 with M7450 which Ericsson continues to deliver to its customers.
Since integration, the modems market has developed in a direction that has reduced the addressable market for thin modems. In addition, there is strong competition, price erosion and an accelerating pace of technology innovation. Success in this evolved market requires significant R&D investments. As a consequence, Ericsson has decided to shift away from modem development to increase focus on opportunities in radio networks.
This is in line with previously communicated statement to evaluate success of Modems within 18-24 months of integration. As a result of the change in strategy Ericsson intends to reduce or redeploy workforce. Local co-determination negotiations with employee representatives to determine next steps will now commence.
Hans Vestberg, President and CEO of Ericsson said: "We have concluded the first phase of the modems strategy by successfully delivering the Ericsson M7450 modem. However, given the modem market dynamics and the development in small cells and indoor coverage markets, we believe resource re-allocation is more beneficial for the Ericsson Group and our customers overall."
The execution of the announced change in strategic direction will commence during the fourth quarter 2014 and we still estimate the R&D cost for Modems to amount to approximately SEK 2.6 b for the full year 2014. With current visibility today's announcement will lead to a significant reduction in costs related to the modem business in the first half of 2015 and Modems will have no impact on Group P&L from the second half of 2015.
Segment Modems will continue to be reported separately until end 2014.
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