Impairment, slowing industry spend take toll on Ericsson

An upturn in business from North America provided a glimmer of light in an otherwise tricky second quarter for Ericsson, a period of lower overall sales, a higher net loss and a continued justification of its $6.2 billion purchase of cloud company Vonage in 2022.

In earnings documents, Ericsson bosses pointed to an improving gross margin and solid free cash flow of SEK7.6 billion ($721.2 million), excluding merger and acquisition numbers.

Ericsson president and CEO Borje Ekholm said the vendor “maintained our leading market position” during Q2, pointing to a return to growth in North America alongside the cash flow and margin figures.

Ekholm added Ericsson “remained focused on matters in our control”, pointing to optimisation efforts in a “challenging market” marked by “unsustainably low” industry investment levels.

Digitalisation
The executive defended Vonage as “foundational” to efforts to deliver a “global platform for network APIs”. Ericsson last week revealed the cloud unit accounted for the bulk of a SEK11.4 billion impairment charge booked for the quarter, the second big hit relating to the business within the past 12 months.

Ekholm explained the latest charge was caused by a slowdown in Vonage’s current business, but appeared to argue there is a long-term payoff to be had as APIs become a critical element in enterprise and consumer digitalisation moves, and so “drive future growth in the telecoms industry”.

India was another factor impacting Ericsson’s sales, with Ekholm stating operator spending slowed.

Operators in the nation are being stretched by various regulatory and infrastructure investment factors, as evidenced by tepid uptake for 5G-suitable spectrum in an auction during June.

Ekholm expects little in the way of recovery from India in the second half of 2024, tipping “contract deliveries in North America” to take up the slack.

Net loss grew from SEK600 million in Q2 2023 to SEK11 billion, albeit this counts the impairment. Sales of SEK59.8 billion were down 7 per cent.