Ericsson is holding talks to merge its Spanish fiber services subsidiary Abentel with another domestic company and sources familiar with the new chief executive's plans say they are looking for more similar deals to cut costs and regenerate the profits of the Swedish manufacturer.
Borje Ekholm, who took office in January, is under pressure from activist investor Cevian to accelerate Ericsson's cost reduction after three consecutive quarters in red that have dropped its price 15% since January.
The Swedish company is concentrating on reducing its exposure to maintenance and network deployment services that require relatively high-paid staff.
Abentel, which supplies fiber-related services, was acquired by Ericsson just 15 months ago and Spanish technology services provider Dominion said on Wednesday they were in preliminary merger talks.
Network deployment and maintenance services are a low-margin, labor-intensive business. They are traditionally outsourced by telecom operators to companies such as Ericsson, Nokia and Huawei. Ericsson is considering whether to sell or try to improve the profitability of these businesses to catch up with Nokia, which made a similar move a few years ago.
"Ericsson needs to increase its margins and the idea is to merge Abentel and other network maintenance units with regional players to deconsolidate the workforce and the costs of these businesses," said a source familiar with the plans.
"Ericsson needs to increase its margins and the idea is to merge Abentel and other network maintenance subsidiaries with regional players to deconsolidate the workforce and costs derived from these businesses," said a source familiar with the plans.
Ericsson has yet to convince analysts that it can meet the target of doubling the margins of 2016 as of 2018. The Swedish company declined comment on Wednesday. (Additional information on Olof Swahnberg and Helena Soderpalm in Stockholm.
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