Ericsson’s staff members in Russia will be placed on paid leave as the company prepares to take the financial hit of lost business in Q1
Russia’s invasion of Ukraine in late February was met with immediate condemnation by the international community, swiftly followed by weighty economic sanctions. As a result of this global pressure, many international firms quickly paused their operations in Russia to align with these new policies.
Swedish vendor Ericsson announced that it would cease equipment deliveries to Russia in early March, with rival Nokia doing likewise.
Now, it seems that the Ericsson is preparing to take the next step, announcing that it has suspended its business indefinitely.
“Ericsson is engaging with customers and partners regarding the indefinite suspension of the affected business. The priority is to focus on the safety and well-being of Ericsson employees in Russia and they will be placed on paid leave,” said the company in a statement.
The company reportedly has around 600 staff working in Russia.
While not explicit as to what this means, the announcement appears to imply the closure of Ericsson’s Russian offices, indicating that they are preparing for long-term closure.
The move will not affect Ericsson’s ability to manufacture equipment in Europe, since its European factories are instead located in Estonia and Poland.
Ericsson says it expects to record a $95 million provision in Q1 2022 for the impairment of assets and other exceptional costs. This total does not include staff redundancy costs.
Whilst this is no small sum, it should be noted that Ericsson’s operations in Russia and Ukraine account for below 2% of the company’s global sales, and falling foul of international sanctions against Russia, intentionally or otherwise, would have far greater financial impact.
For the Russian operators, however, this news will be a cause for consternation. With no new equipment arriving from either Nokia or Ericsson for the foreseeable future, network maintenance and expansion will rapidly become a major challenge – one that could warrant shifting to a new equipment supplier entirely.
Indeed, many have suggested that these sanctions could represent a major opportunity for China’s Huawei and ZTE, two vendors that are already market leaders within Russia. These companies, much like China’s broader stance on the invasion of Ukraine, have refused to follow Western sanctions against Russia while also avoiding lending the country overt aid.
Around a month ago, two of Huawei UK’s non-executive directors, Sir Andrew Cahn and Sir Ken Olisa, both resigned from their position citing Huawei’s refusal to officially condemn the Russian invasion. Two weeks later, Huawei’s chief financial officer, Meng Wanzhou, in her first public appearance since being released from house arrest in Canada, said that the company was still evaluating the complexities of government sanctions being put in place against Russia.
Both Huawei and ZTE comfortably have the scale and expertise to exploit the market opportunity presented by the temporary or even long-term departure of Ericsson and Nokia, but to do so would not be without risk. The US, for example, has made it clear that those companies seeking to circumvent sanctions against Russia could face sanctions of their own.
With China’s telecoms sector, including Huawei and ZTE, already suffering under the weight of US sanctions put in place over the last three years, the threat of additional measures will not be taken lightly.
In fact, reports suggest that Huawei may itself be preparing to reduce its business in Russia for fear of impinging on international prohibitions. Last week, Forbes reported that Huawei had sent part of its Russian staff on holiday for a month and had stopped entering into new supply contracts with Russian operators.
Huawei currently accounts for more than a third of all network equipment installed in Russian telecoms network.