Ericsson posts $1bn quarterly loss on Vonage write down

Swedish telecommunications equipment manufacturer Ericsson said Friday it had suffered a $1.0 billion quarterly loss after writing down the value of its purchase of US cloud-based communications operator Vonage.

Ericsson acquired Vonage in 2022 for $6.2 billion to expand its presence in wireless enterprise and broaden its global offerings, but already last year it wrote down its value by $2.9 billion as market conditions shifted.

Another write down of 11.4 billion Swedish kronor ($1.1 billion), mostly attributable to Vonage, was behind the 1.0 billion kronor loss in the second quarter.

Ericsson chief executive Borje Ekholm defended the acquisition.

“Vonage remains foundational to build out a global platform for network APIs,” he said, referring to the interfaces which allow for different software applications to communicate.

“This is critical for the digitalization of enterprises and society, and will drive future growth in the telecoms industry,” he added.

Ericsson, along with its Nordic rival Nokia and China’s Huawei, dominates the market for 5G mobile network communications equipment, and the Vonage acquisition was aimed at diversifying into a growth market.

Ekholm said the write down was due to market growth slowing.

Accounting rules require companies to regularly reevaluate the value of their assets in line with market conditions which can provoke huge losses that may not fully reflect the operating situation of a firm.

Ericsson’s second quarter adjusted operating profit rose by 10 percent from the same period last year to 4.1 billion kronor even though it stepped up investment.

Sales however slid by 7 percent in the April-June period, to 59.8 billion kronor, although it noted that they rose by 14 percent in the important North American market.

Ekholm noted that the investment levels of its main clients, telecommunications operators, were unsustainably low but that the short-term outlook remains difficult.

“We expect market conditions to remain challenging this year, as the pace of India investments slow,” he said.

“However, our sales will benefit during the second half from contract deliveries in North America.”

He emphasized, however, that Ericsson, which announced in March 1,200 job cuts in Sweden, needs to “refocus on improving performance”.

It already announced 8,500 job cuts throughout the world last year to reduce costs.

© 2024 AFP