Ericsson faces $1B loss due to Vonage write-down

Swedish telecommunications giant Ericsson announced on Friday a $1.0 billion quarterly loss, primarily due to the write-down of its 2022 acquisition of US cloud-based communications operator Vonage.

Ericsson acquired Vonage for $6.2 billion to expand its wireless enterprise presence and broaden its global offerings. However, last year the company wrote down Vonage’s value by $2.9 billion as market conditions shifted.

In the second quarter, Ericsson recorded another write-down of 11.4 billion Swedish kronor ($1.1 billion), mostly attributable to Vonage, resulting in a 1.0 billion kronor loss. Despite the write-down, Ericsson CEO Borje Ekholm defended the acquisition, stating, “Vonage remains foundational to build out a global platform for network APIs. This is critical for the digitalisation of enterprises and society and will drive future growth in the telecoms industry.”

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Ericsson, along with Nordic rival Nokia and China’s Huawei, dominates the market for 5G mobile network communications equipment. The Vonage acquisition was aimed at diversifying into a growth market. Ekholm explained that the write-down was due to a slowdown in market growth. He also noted that accounting rules require companies to regularly reassess the value of their assets in line with market conditions, which can lead to substantial losses that may not fully reflect the company’s operating situation.

Despite the loss, Ericsson’s second-quarter adjusted operating profit rose by 10 percent from the same period last year to 4.1 billion kronor, even as it increased investment. Sales, however, fell by 7 percent in the April-June period to 59.8 billion kronor. The company did note a 14 percent sales increase in the important North American market.

Ekholm highlighted that the investment levels of its main clients, telecommunications operators, were unsustainably low, but he remained cautious about the short-term outlook. “We expect market conditions to remain challenging this year, as the pace of India investments slows,” he said. “However, our sales will benefit during the second half from contract deliveries in North America.”

In March, Ericsson announced 1,200 job cuts in Sweden as part of its cost-cutting efforts. Last year, the company also announced 8,500 job cuts worldwide to reduce expenses. Ekholm emphasized the need for Ericsson to “refocus on improving performance” in light of these challenges.