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The company reported a fall in in their third quarter revenues of $2.84 billion, citing a drop in demand for 5G equipment in North America as the key driver of the poor results
This morning, Ericsson has announced disappointing financial results for the third financial quarter of this year, noting a $2.9 billion impairment on its Vonage acquisition and a fall in demand for 5G equipment in key markets.
Indeed, this decline in demand saw Ericsson’s sales North America drop from 48% of the company’s total to just 23% year-on-year. Group organic sales also fell by 10% year-on-year.
The company stated that they expect the difficult conditions in the market to continue to next quarter, confirming that market conditions will affect mobile network investment into next year.
Despite shrinkage in key markets, there has been growth in developing markets such as India and the Middle East, which has partly helped to offset the company’s performance in North America, Ericsson said.
“In a challenging operating environment, Ericsson delivered third quarter results in line with our guidance. Consistent with the rest of our industry, we expect the macroeconomic uncertainty to persist into 2024, which impacts our customers’ investment ability,” said Börje Ekholm, President and CEO.
“We are addressing these challenges with a focus on elements within our control, namely cost management and operational efficiency. We are on a journey to fundamentally reposition our business and we continue to execute on our strategy to extend our leadership in mobile networks, grow our enterprise business, and drive lasting cultural transformation.”
“We are not going to guide for 2024 specifically, because the timing of the recovery of the market is uncertain,” Chief Financial Officer Carl Mellander told Reuters.
Equipment providers like Ericsson have been heavily impacted by a reduction in spending from telecoms firms over the past year, as the global telco community seeks to cut cost in the face of a challenging global economy.
After Ericsson’s release of its quarterly results, share price dropped by 9%, the lowest level in six years.
These results for Ericsson should come as little surprise, with the company having pre-empted its misfortune by last week announcing an impairment charge of SEK 32 billion ($2.9 billion) in the third quarter ‘relating to the impairment of goodwill attributed to the Vonage acquisition’.
In November 2021, Ericsson announced its deal to purchase the AOI specialist Vonage for $6.2 billion, which Ericsson claimed would help the firm broaden its 5G portfolio and make its network more directly accessible for developers. It has since been made clear that Ericsson misjudged the value of its acquisition, the value of which has since practically halved.
“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,” said Ericsson in a statement last week.
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