Ericsson Records SEK 32 bn Impairment Charge, Highlights Strategic Focus in Q3 2023

Ericsson announced a non-cash impairment charge of SEK 32 billion for the third quarter of 2023, adhering to IFRS accounting standards. This charge constitutes 50 percent of the total goodwill and intangible assets attributed to Vonage and will be reported in the Enterprise segment, affecting comparability.
Ericsson mobile networks for telecomsThe impairment follows a significant decrease in Vonage’s market capitalization compared to its publicly traded peers, combined with higher interest rates and a general slowdown in Vonage’s core markets.

Ericsson reaffirms its commitment to its enterprise strategy, highlighting Vonage’s network API capabilities as central to this strategy and the development of a Global Network Platform (GNP). Despite the impairment, Ericsson maintains a positive outlook on the GNP market potential.

Vonage continues to play a pivotal role in Ericsson’s enterprise expansion strategy. Ericsson’s Enterprise strategy received a boost in the third quarter with a major commercial partnership announcement in its GNP business, marking a significant milestone.

The GNP development is creating a burgeoning market for exposing 5G capabilities through network APIs, estimated to reach USD 20 billion by 2028 according to telecom consultancy and research firm STL Partners. Ericsson anticipates the initial revenues from network APIs to materialize in 2023.

The performance in Q3 aligned with projections, achieving an EBITA margin (excluding restructuring charges) of 7.3 percent, equating to an EBITA of SEK 4.7 billion. The group’s organic sales (adjusted for comparable units and currency) saw a -10 percent decline, with a -16 percent organic decline in Networks, offset by 5 percent organic growth in Cloud Software and Services and a 10 percent organic growth in Enterprise.

Networks organic sales saw a substantial YoY decrease of -60 percent in North America, attributed to operators curtailing Capex spend and adjusting inventories. This decline was in contrast to a record-breaking Q3 in North America the previous year. However, robust sales in India partially offset this sharp downturn.

Cloud Software and Services maintained momentum in executing its turnaround strategy, achieving break-even on a four-rolling-quarters basis with an EBITA (excluding restructuring charges) of SEK 0.4 billion in Q3.

The Enterprise segment reported consistent robust growth in Enterprise Wireless Solutions and a slightly positive EBITA (excluding restructuring charges) in the Global Communications Platform business (Vonage) during the quarter.

Free cash flow before M&A stood at SEK -0.5 (2.5) billion, reflecting a negative trend largely attributed to the accumulation of working capital for expansive roll-out projects.

Ericsson is scheduled to release its comprehensive report for the third quarter of 2023 on October 17, approximately at 07:00 CEST.

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