Is Ericsson Pooling Its Resources Into R&D Effectively?

Ericsson’s investments in research and development (R&D) are aimed at developing a network ecosystem operable with the prevailing and future telecom technologies, which can help its stay at par with or better than the competition. In addition, part of that investment goes towards developing effective network wireless infrastructure installation techniques so as to minimize the cost of sales and maximize gross profits. Considering this, the efficiency of Ericsson’s R&D can be gauged by gross profit dollars (since it incorporates cost of sales) generated per dollar spent on R&D. The table below indicates that the company’s R&D efficiency is indeed improving and we expect it to continue this way in the near term, though at a slower pace.

With 4G still in the deployment phase, and 5G and the Internet of Things warming up, it makes sense for the company maintain a firm focus on R&D to so as to offer efficient wireless network infrastructure systems to its clients. At the same it, it is imperative to identify and eliminate redundancies in the R&D divisions, most likely associated with older technologies. Ericsson has been making progress on the this front. Last year, the company announced that it would cut about 2,200 jobs, mostly in R&D, by 2017 to save on its R&D expenses. Ericsson can do with fewer R&D expenses related to 2G and 3G going forward given that it’s already the world’s largest holder of 2G (GSM/GPRS/EDGE), 3G (WCDMA/HSPA) and 4G (LTE) patents, with about 37,000 patents under its belt.

Have more questions about Ericsson See the links below: Notes:

• What’s Ericsson’s Revenue & Net Income Breakdown In Terms Of Different Operating Segments?
• What’s Ericsson’s Fundamental Value Based On Expected 2016 Results?
• By How Much Have Ericsson’s Revenue and EBITDA Increased In The Last Five Years?

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