Ericsson’s $1 billion loss amid Vonage write down

The Vonage acquisition by the Swedish telecom giant could become problematic

Image by Mohamed Hassan from Pixabay (with added cat face courtesy of Canva)

Ericsson reported a $1 billion quarterly loss due to writing down the value of its 2022 acquisition of US cloud-based communications company Vonage.

The acquisition, initially valued at $6.2 billion, was meant to expand Ericsson's presence in wireless enterprise and global offerings. However, due to shifting market conditions, the value of Vonage was reduced by $2.9 billion last year and an additional $1.1 billion this quarter.

Despite the loss, Ericsson CEO Borje Ekholm defended the purchase, emphasizing its importance for developing a global platform for network APIs, which are critical for enterprise digitalization and future telecom growth.

Sweden-based Ericsson, a major player in 5G network equipment alongside Nokia and Huawei, aimed to diversify into new growth markets with the Vonage acquisition. The write down was attributed to slower market growth, with accounting rules requiring regular asset value reassessments.

Ericsson's adjusted operating profit for Q2 rose 10% from the previous year to 4.1 billion kronor, despite a 7% drop in sales to 59.8 billion kronor. Sales increased by 14% in North America. Ekholm noted low investment levels from telecom operators and a challenging short-term outlook, particularly with slowing investments in India. However, he expects North American contract deliveries to boost sales in the latter half of the year.

Ericsson has announced job cuts to reduce costs, including 1,200 jobs in Sweden and 8,500 globally last year. Ekholm stressed the need to refocus on improving performance.

Ouch! This could become a serious problem…