Ericsson warns of possible impairment in digital services and media business
Stockholm — Ericsson said on Friday it may have to book a goodwill impairment in its struggling digital services and media businesses, potentially hitting the Swedish mobile network equipment maker’s operating income but not its cash flow.
Once the world’s biggest manufacturer of mobile network gear, Ericsson has been hit by competition from Huawei and Nokia, while spending by telecoms operators has slumped ahead of the roll-out of next-generation 5G technology.
Ericsson, which has cut costs and reorganised in response, said a restatement of its financials to reflect its new structure had uncovered the potential need for impairments.
"If it turns out that we make an impairment of goodwill, we want to stress that it would not be due to the business in the (fourth) quarter but rather due to accounting matters," chief financial officer Carl Mellander said.
Ericsson said it would announce the outcome of its goodwill review before it publishes its fourth-quarter report.
The digital services segments and a segment it calls "other", which houses its media business, had about 20-billion krone ($2.35bn) in goodwill and acquisition-related intangible assets in the third quarter, against about 45-billion for the group.
Lars Soderfjell, portfolio manager at Alandsbanken who has no position in Ericsson shares, said he was not surprised by the move given the performance of the business.
Ericsson’s digital services segment posted an operating loss excluding restructuring costs of 6.9-billion krone in the first three quarters of the year while its other segment made a loss of 4.1-billion krone during that period.
Ericsson said an impairment would affect its operating income but not cash flow. It said its cash position was strong.
The company’s shares were up 0.1% by 9.55am GMT. This underperformed a 1.2% gain in the Stockholm blue-chip index and a 1.1% rise in Nokia shares.