Ericsson takes huge Vonage impairment

Ericsson said it would take an impairment charge of almost $3 billion in the third quarter 2023 "relating to the impairment of goodwill attributed to the Vonage acquisition."

In a release, Ericsson said, "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."

The financial analysts at Raymond James offer a quick take on the news in a note to investors: "Although the charge does not surprise us, the value does," they wrote.

Ericsson said it plans to continue pursuing the enterprise strategy – centering on its Global Network Platform (GNP) and the sale of network-based application programming interfaces (APIs) – that underpinned its acquisition of Vonage. Ericsson's purchase of Vonage – mostly known as an Internet calling provider – closed roughly a year ago.

"The development of GNP is creating a new market for exposing 5G capabilities through network APIs and the market opportunity is estimated at $20 billion by 2028 by telecom consultancy and research firm STL Partners," Ericsson said. "This market will open up new ways for operators to monetize their investments in networks from enterprises and in turn drive further investments in mobile infrastructure. Ericsson expects the first revenues from network APIs during 2023."

Ericsson earlier this week said CO-OP KINKI, a consumer's cooperative based in Japan, would use Vonage's APIs for two-factor authentication.

In its release, Ericsson also offered a peek at some of its third-quarter financial results. The company's earnings margin – excluding restructuring charges – was in line with its previous guidance.

The company said a 16% organic sales decline in its Networks business was partly offset by 5% organic growth in its Cloud Software and Services division. Ericsson also said it recorded 10% organic growth in sales in its Enterprise business.

"Networks organic sales were down by 60 percent in North America year over year, with operators reducing their capex spend and adjusting inventories," the company said, noting that declines in North America were partly offset by its strong sales in India.

According to Raymond James analysts, the company's figure indicates its radio access network (RAN) business "continues to deteriorate at the margin." But they said Ericsson's cloud sales were "a bright spot."