Ericsson, Humbled by Huawei, Takes Another $1.8 Billion in Charges -- 2nd Update

By Stu Woo Features Dow Jones Newswires

Ericsson AB's costly turnaround still isn't over.

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The Swedish telecommunications-equipment maker said it expects to write down another 14.2 billion Swedish kronor ($1.77 billion) in assets, as it struggles to retool itself amid slowing sales and nimbler Chinese rivals. It is the latest in a series of charges related to a long-running restructuring that has so far cost more than $5 billion over the past two years.

Over that period, Ericsson has replaced its chief executive and chairman, shed thousands of jobs and racked up a series of quarterly losses. It has also tussled with an activist investor, who ultimately won a role picking board members.

The company attributed about half of Tuesday's charge to the reduced value of its digital-services unit, which helps mobile carriers manage their customer accounts. Most of the other half came from a collection of other assets related to services provided to TV broadcasters.

Most of the assets affected were acquired 10 or more years ago and have "limited relevance" for Ericsson's current business, it said. The noncash charges would be booked in the fourth quarter of 2017.

Long one of the world's dominant telecom-equipment suppliers, Ericsson and rival Nokia Corp. have been humbled by the fast rise of Chinese competitors, especially Huawei Technologies Co. Huawei is now the world's biggest seller of the telecoms gear at the center of modern mobile communications--though it hasn't made much headway in U.S.

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Ericsson, meanwhile, has reported four straight quarters of losses. It and Nokia have said 2018 would be challenging amid an industrywide spending lull. Mobile carriers largely have all the equipment they need for the current generation of wireless technology, 4G, and aren't expected to shell out for the next generation, 5G, until 2019 or later.

On top of that, Ericsson faces stiffer competition. Since 2012, it has fallen from first to third place in the $126-billion-a-year market for telecommunications equipment and software, according to IHS Markit Ltd. In 2016, Huawei led with a 20.4% market share. Nokia acquired competitor Alcatel-Lucent to leap into second place, with 14%. Ericsson had 12.5%, while China's fast-rising ZTE Corp. had 9.2%.

Early last year, Ericsson said it was embarking on a major turnaround effort, streamlining management and focusing on selling cellular tower equipment and related hardware and software to carriers such as Verizon Communications Inc.

Ericsson is now hoping to position itself to capture a chunk of cash that mobile carriers will spend on 5G upgrades, which is expected to total $275 billion over seven years in just the U.S., according to Accenture. But the challenge, European and U.S. telecommunications executives have said, is that Huawei offers a broader range of products, often at lower costs.

"We're not going to beat them on costs, to be honest. There's no chance. They have both scale and lower production costs," Ericsson Chief Executive Börje Ekholm said in a November interview. "We need to beat them on innovation."

Last year, Cevian Capital, one of Europe's biggest activist investors, took a stake of more than 5% in Ericsson and criticized the makeup of the company's board. Ericsson's chairman stepped down, and Cevian co-founder Christer Gardell joined the Ericsson committee that nominated board members. In a November interview, Mr. Gardell said he supported the current chief executive and his strategy, but added that "the pace of change could improve."

Ericsson benefits in the lucrative U.S. market from Huawei's near-pariah status there. A 2012 congressional report raised state-sponsored spying concerns with Huawei equipment. Huawei has denied any wrongdoing. Ericsson in December said Verizon had awarded the Swedish company a 5G contract.

Ericsson also Tuesday joined a parade of companies disclosing accounting adjustments because of changes in U.S. tax law. It said the recent cut to the corporate income-tax rate, to 21% from 35%, which went into effect Jan. 1, required a revaluation of its U.S. deferred tax assets. These assets, essentially tax credits, are worth less at the lower tax rate. Ericsson said the estimated impact will be a noncash charge of around 1 billion kronor.

Write to Stu Woo at Stu.Woo@wsj.com

(END) Dow Jones Newswires

January 16, 2018 09:49 ET (14:49 GMT)