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Ericsson books $3 billion impairment, says Q3 core profit fell 39%
Global Banking & Finance Review®
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STOCKHOLM (Reuters) -Ericsson on Wednesday announced a 32 billion Swedish crown ($2.9 billion) impairment charge related to its acquisition last year of Vonage, and said core profits fell in the third quarter as demand tumbled in North America.
STOCKHOLM (Reuters) -Ericsson on Wednesday announced a 32 billion Swedish crown ($2.9 billion) impairment charge related to its acquisition last year of Vonage, and said core profits fell in the third quarter as demand tumbled in North America.
The Swedish telecom gear maker bought Vonage in a $6.2 billion deal.
“The impairment is as consequence of the significant drop in the market capitalisation of Vonage’s publicly traded peers, increased interest rates and overall slowdown in Vonage’s core markets,” it said in a statement.
“The impairment charge represents 50% of the total amount of goodwill and other intangible assets attributed to Vonage.”
Ericsson said a preliminary reading showed its operating profit before amortisation and restructuring and impairment charges fell 39% in the third quarter to 4.7 billion crowns.
Group sales adjusted for comparable units and currency translation effects fell 10%. Ericsson’s biggest division Networks saw organic sales drop 16%.
“Networks organic sales were down by 60% in North America year-on-year, with operators reducing their capex spend and adjusting inventories,” it said.
Ericsson’s profits plunged also in the second quarter as a slowdown in consumer spending hit sales of telecommunications gear. In February, the group announced plans to cut 8,500 employees globally to reduce costs.
The group, which is scheduled to publish its full quarterly earnings report on Oct. 17, said it expected an operating margin of 7.3% before amortisation and restructuring charges, in line with previous guidance.
Ericsson is looking to tap Vonage’s communication platform to help developers create applications using network information, user authentication, bandwidth, responsiveness, energy efficiency, security and reliability. ($1 = 10.9458 Swedish crowns)
(Reporting by Anna Ringstrom in Stockholm and Shivani Tanna in Bengaluru; Editing by Shailesh Kuber, Leslie Adler, Terje Solsvik and Jonathan Oatis)
An impairment charge is a reduction in the book value of an asset when its market value falls below its carrying value, indicating that the asset is no longer worth its original value.
Operating profit is the profit a company makes from its core business operations, excluding deductions of interest and taxes. It reflects the efficiency of the company's core business activities.
Market capitalisation is the total market value of a company's outstanding shares of stock, calculated by multiplying the share price by the total number of shares. It indicates the company's size and market value.
Goodwill is an intangible asset that arises when a company acquires another business for more than the fair value of its net identifiable assets. It reflects the value of the acquired company's brand, customer relationships, and other factors.
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