2011 Boston University Case Competition
Enhancing Quality of Life Through Technology Convergence
Team Budapest
Hussein Govani | James Larsen | Daniel Moro | Paul von Martels
2Source: Ericsson Annual Report 2010
Review of Situation
Why are we meeting with you today?
Define a Business Roadmap to 2015
Ericsson must leverage its position to;
1. Find unique opportunities to enhance people’s lives through a networked society
2. Create new, sustainable business opportunities
1 40% annual CAGR extrapolated from 2011 - 2015
1
2
2010 2011 2012 2013 2014 2015 2016
0.6 0.8 1.1 1.62.1
3.04.1
0.10.2
0.20.3
0.4
0.5
Handheld Devices Mobile PC and Tablets
Global Mobile Broadband Subscriptions (bns)
~ 40% 6 Yr CAGR
Summary of Business Strategy Recommendations
3. Integrate Emerging Markets with Developed• Convergence of developed market networks with
emerging market networks (geographic convergence)
Summary of Key Recommendations
As the market leader in broadband connection services, Ericsson is positioned to become the Architect of the Networked Society
End-to-End
Core Business
Emerging Markets
1. Up & Downstream: Become End-to-End ICT Manager• Build out data management capabilities (cloud integration)• Leverage partnership with Akamai• Strategic vertical partnerships and acquisitions
3. Expand Market Share Positions in Key Business Areas1
• Expand market share through large and small M&A• Expansion of consulting capabilities to support new
offerings
1
2
3
1Assume maintenance of operational and financial performance metrics
3
4Source: PriceWaterhouseCoopers, US Energy Administration
Vision 2015: Health Care and Energy
The Business Strategy Recommendations enable Ericsson to embark on its Vision 2015 mission: make a difference!
Vision 2015 Industry Focus Examples: Health Care Access and Energy Management
1. US Health Care market• Total annual expenditure > $2.3 trillion1
• Stakeholders want better access to care• Massive push for cost reduction
12008 total expenditures in US Health Care22010 total spend, Residential, Commercial, Industrial $618M Source: eia.gov
2. US Energy Distribution market• Total spend of $1.2 trillion2
• 4% 5-year CAGR on total expenditure
5
Information• Claims Data• Prescriptions• Medical Records• Analytics
Care Facilities• Data processing• Inventory Mgmt
Doctors
Appendix: Health Care Sector Alliances
Understanding the dynamics of the US healthcare market to optimize interactivity
Patients• Insured• Uninsured
Vision 2015: Health Care Opportunity
Patient Information• Claims Data• Prescriptions• Medical Records
- Laptop supported- Tablet / Smartphone- Specialized devices
Devices
6Patients
Pharmacies
Doctors
- Partnership with National and local pharmacies
Drug Distribution
- Analytics- proactive care- Real-time data
management
Data Management
System Benefits• Convenience• Efficiency• Lower cost
Vision 2015: Health Care Opportunity
How could this business work?
• Seamless patient experience- integration of handheld devices, cloud analytics, pharmacies
• Data management capabilities• American Well continues to sell model to
Insurers / payors1designed to lower overall medical costs
• Develop medical devices that integrate with the “cloud” and with A-W
• Integration of medical communities• Opportunity to deploy similar networks in
developing markets
7
The A-W and Ericsson partnership could be one of great synergy; A-W with the platform and Ericsson with the mobile capabilities
1I.e., Wellpoint, United Health Group, Aetna etc.
American Well Business Model
Potential Partners
8
Vision 2015: Health Care Opportunity
Health Care Competition
American Well has a unique business model in a highly fragmented market
• Different Business Model
• Highly fragmented
• Nascent ventures
OPPORTUNITY
9Source: US Energy Information Administration
Smart Meter PenetrationAvg. Retail Cost of Energy (Cents Per Kilowatt hour)
Smart meter penetration is approximately 40% across all sectors but two-way communication meter penetration is less than 10%
Vision 2015: Energy Usage
10
Vision 2015: Energy Acquisitions
Acquisition Plan For Energy Opportunity
Cavet Technologies created disruptive patented technology which allows for the instant reduction in lighting consumption by 30%
Analysis
Services
Ericsson EMA
Ericsson EMA
Database
Analysis
Remote Access Portal
Services
Vision 2015: Energy Business Model
Energy Consumption Management and Reduction Model
Acquisition of Cavet Technologies and development of complimentary energy consumption management system will provide additional EV of $1.3B
11
Vision 2015: Energy Opportunity
Energy Management Competition
Energy management market lacks differentiation, is highly fragmented and has great pricing flexibility
• Highly fragmented
• Lack of customer focus
• Pricing flexibility
• No I.P.
OPPORTUNITY
12
Source: Hoovers, 2010 Ericsson Annual Report, Santander, Yahoo Finance
Vision 2015: Focus on Core Business
• Opportunity to strategically deploy cash (ROIC>WACC)
• 2 new partnerships
Grow Faster than the Market Best in Class Operating Margins
STRONGSTRONG• R&D expense lower than major competitor (14.7% vs. 16.6%)
• ALU’s quarterly revenue growth at 23% vs. ERIC’s at 7.6%
• Competitors exiting market• Huge opportunity in emerging
markets (network LTE)
Ericsson is well positioned to capitalize on organic growth opportunities but can finance more aggressive ventures
• Industry leading and stable operating and NI margins
• Mature organization (stable earnings)
• 5 Year PEG at 1.59
Strong Cash Conversion • High debt capacity (currently low
debt)• Estimated to have $17B in cash
in 20121 (WACC at 10%) ROIC should be greater
ConcernSTRONG
1110,000M SEK, Santander 2011 Projections
• 25% decrease in unit sales on Sony Ericsson handsets
• New JV with ST-Ericsson producing cutting edge devices
• New partnership with Akamai
Growth in JV Earnings
13
Incremental EBITDA
Financials (I)
$300 million in incremental EBITDA by 2015, $1.6 billion in additional enterprise value, and a 65% overall IRR
2012 2013 2014 2015 2016 2017 2018 2019 2020 -
200,000,000
400,000,000
600,000,000
800,000,000
1,000,000,000
1,200,000,000
1,400,000,000
1,600,000,000
1,800,000,000
LumiSmart Device EBITDA
LumiSmart Service EBITDA
mHealth EBITDA
Year
U.S
. Dol
lars
14
Additional enterprise value
Total LumiSmart Device LumiSmart Service mHealth Service -
300
600
900
1,200
1,500
1,800
1575
405
890
280
Mill
ions
of U
.S. D
olla
rsFinancials (II)
$300 million in incremental EBITDA by 2015, $1.6 billion in additional enterprise value, and a 65% overall IRR
*Based on DCF analysis, and trading multiples
15
PHASE 1
Phase 1
Phase 2
Phase 3
On-going process for identifying Partners and Acg. targets
Further development of India market
Focus shift to China
Due Diligence
PHASE 3PHASE 2
Partnerships and Acquisitions 1 Developing MarketsEnhanced Core Offering
2011 2012 2013 2014 2015
1st Agreement
Developing market infrastructureHard focus on developed market infrastructure upgrades (4G)
Execution Roadmap
Due Diligence: Market profiling, target screening
16
Questions and Answers
Appendix Control Panel
Porter’s 5 Forces
Competitor Facts – Health Care
Competitor Facts – Energy Sector
US Health Care – Wait Times
Financial Projections
LumiSmart Adoption
American Well Adoption
Risks and Mitigation Plan
Risks and Mitigation Strategies
Risks of End-To-End Role Out For Health and Energy Opportunities
Primary risks concern the ability to scale and overall network security
PRIMARY RISKS MITIGATION STRATEGIES• Develop appropriate partnerships to gain access• Perfect model in developed economies
• Default power position for energy• “Safety” servers for health system• Develop premium customer support services
• Continuously invest to ensure best practices• Avoid sale of personal consumer data• Develop premium customer support services
• Communicate value add differentiation• Increase barriers to entry through partnerships and
development of intellectual property
1. Scalability• Data = Analysis = Services
2. Network failure• Consumer reliance on systems• Limited margin for error
3. Security and Privacy• Consumer sensitive data• Major cloud computing concern
4. Competitive Reaction• Fragmented market• Low barriers to entry for
applications
19
20Source:
-10 -8 -6 -4 -2 0 2 4 6 8 10
-10
-5
0
5
10
Health Care
-10 -8 -6 -4 -2 0 2 4 6 8 10
-10
-5
0
5
10
Energy
Supplier Power
Competitive Rivalry
Substitutes
Buyer Power
Threat of New Entrants
Supplier Power
Competitive Rivalry
Substitutes
Buyer Power
Threat of New Entrants
Appendix: Porters 5 Forces
21
Appendix: Competitor Facts
Energy Management Competition
Energy management market lacks differentiation, is highly fragmented and has great pricing flexibility
• Open Source• Free• Home use
• Free• Home use• BlueLine Hardware ($270 MSRP)
• Partnership with Cisco (Vancouver)• Commercial and Home• Fee = <50% of annual energy savings
• Home use• Fee for service and handset
KEY FACTS
Google PowerMeter
Microsoft Hohm
EnergyCAP
Pulse Energy
CISCO Home EM
• Industrial, Commercial and Home• Fee = 0.5%-1.5% of utilities cost
22
Appendix: Health Care Opportunity
Health Care Competition
American Well is a rare combination of real-time response, complete service offering, and online & telephone capability
• 28000 physicians, 4000 practices• Telephone and virtual site• Same functionality
• Real-time response time• All functionality• Based in waiting rooms
• Telephone and virtual site• 1 hour response time
KEY FACTS
Intuit Health
Cisco
Relay Health
MinuteClinic
TelaDoc
• 8 hour response time• Only basic functionality
• Pharmacy/grocery chain locations• 15 minute diagnosis• 25 states
Wait times greater than 20 days
Wait times between 10 – 20 days
Wait times between 1 – 10 days
American Well’s organizational structure and end product flexibility enable the company to meet the diverse demands of the US market
23Harvard Case: American Well: The Doctor Will E-See You Now
Appendix: US Medical Wait Times by States
23
Appendix: Summary financial projections
24
Appendix: Bass curve (I)
25
LumiSmart (U.S. Market) – Projected Adoption
Appendix: Bass curve (II)
26
mHealth (U.S. Market) – Projected Adoption