Ericsson announces impairment charge of SEK 32bn and provides update on Q3 earnings

  • Non-cash impairment of SEK 32 billion in the third quarter 2023, relating to the impairment of goodwill attributed to the Vonage acquisition.
  • Vonage remains critical to the enterprise strategy and Ericsson’s positive outlook on the potential of the Global Network Platform remains unchanged.
  • Ericsson also announces highlights from the Q3 results with a group EBITA margin excluding restructuring charges of 7.3% which is in line with previous guidance.

Ericsson (NASDAQ: ERIC) today announced that, in accordance with IFRS accounting requirements, it will record a non-cash impairment charge of SEK 32 billion in the third quarter of 2023. The impairment charge represents 50% of the total amount of goodwill and other intangible assets attributed to Vonage. The impairment will be reported in segment Enterprise as an item affecting comparability.

The impairment is a consequence of the significant drop in the market capitalization of Vonage’s publicly traded peers, increased interest rates and overall slowdown in Vonage’s core markets. Ericsson continues to advance its enterprise strategy, with Vonage’s network API capabilities being central to this strategy and the development of a Global Network Platform (GNP). The impairment does not alter Ericsson’s positive outlook on the GNP market potential.

Vonage remains key to Ericsson’s strategy to expand in Enterprise. The Enterprise strategy is underpinned by the development in the third quarter in which Ericsson announced an important milestone with a major commercial partnership in its GNP business. The development of GNP is creating a new market for exposing 5G capabilities through network APIs and the market opportunity is estimated at USD 20 billion by 2028 by telecom consultancy and research firm STL Partners. This market will open up new ways for operators to monetize their investments in networks from enterprises and in turn drive further investments in mobile infrastructure. Ericsson expects the first revenues from network APIs during 2023.

Q3 earnings in line with guidance (preliminary and unaudited numbers)

Isolated quarters, excluding restructuring and impairment charges, SEK b. Q3
Net Sales 64.5 68.0 -5% 64.4 0%
Of which Networks 41.5 48.1 -14% 42.4 -2%
Of which Cloud Software & Services 15.6 14.2 10% 15.1 3%
Of which Enterprise 6.7 5.0 34% 6.4 5%
Gross Income 25.3 28.2 -10% 24.7 3%
Of which Networks 16.6 21.4 -23% 16.7 -1%
Of which Cloud Software & Services 5.6 4.6 23% 5.1 10%
Of which Enterprise 3.3 2.4 34% 3.0 10%
Gross Margin 39.2% 41.4%   38.3%  
Operating Expenses -21.3 -21.3 0% -22.2 -4%
EBITA 4.7 7.7 -39% 3.7 28%
EBITA Margin 7.3% 11.3%   5.7%  
 Networks 12.6% 20.0%   11.4%  
 Cloud Software & Services 2.8% -5.0%   -1.9%  
 Enterprise -8.9% -20.3%   -13.2%  
Free Cash Flow before M&A -0.5 2.5   -5.0  
Restructuring charges -0.9 -0.1   -3.1  

Performance in Q3 was in line with guidance with an EBITA margin excluding restructuring charges of 7.3% corresponding to an EBITA of SEK 4.7 billion. Group organic sales (adjusted for comparable units and currency) declined by -10%, with -16% organic decline in Networks partly offset by 5% organic growth in Cloud Software and Services and 10% organic growth in Enterprise.

Networks organic sales were down by -60% in North America YoY, with operators reducing their capex spend and adjusting inventories. It is worth noting that Q3 last year was a record quarter in North America. The sharp decline in North America was partly offset by strong sales in India.

Cloud Software and Services continued to execute on the turnaround strategy. With an EBITA excluding restructuring charges of SEK 0.4 billion in Q3 Cloud Software and Services has now achieved break-even on a four rolling quarters basis.

Enterprise reported continued strong growth in Enterprise Wireless Solutions and a slightly positive EBITA excluding restructuring charges in the Global Communications Platform business (Vonage) in the quarter.

Free cash flow before M&A was SEK -0.5 (2.5) billion. The negative free cash flow this year is a result of the build-up of working capital for the large roll-out projects.

Ericsson will, as previously communicated, announce its full report for the third quarter 2023 on October 17, at approximately 07.00 CEST.

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