Network-equipment maker battles slow industry spending, Chinese competition
This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (January 17, 2018).
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Ericsson AB's costly turnaround continues.
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 in the face of slowing sales and nimbler Chinese rivals. It is the latest in a series of charges amounting to 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 quarterly losses. It has also tussled with an activist investor, who ultimately won a role picking board members.
The company attributed about half of the $1.77 billion charge to the reduced value of its digital-services unit, which helps mobile carriers manage their customer accounts. Most of the other half stemmed from a collection of assets related to services provided to TV broadcasters.
Ericsson said most of the assets affected were acquired 10 or more years ago and have "limited relevance" for its current business focus. The noncash charges would be booked for last year's final quarter.
Long among 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 networking gear at the center of modern mobile communications -- even though it hasn't made much headway in U.S.
Since 2012, Ericsson has fallen from first to third place in the $126 billion 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%.
Ericsson has reported four straight quarters of losses, and it and Nokia have said 2018 would be challenging as well 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 at earliest.
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's aim is to capture a good chunk of what mobile carriers spend on 5G upgrades, a sum that Accenture projects at $275 billion over seven years in the U.S. alone. But the challenge, European and U.S. telecommunications executives have said, is that Huawei offers a broader range of products, often at lower prices.
"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 concerns about Huawei equipment being used by Beijing for spying. Huawei has denied the allegations. Ericsson in December said Verizon had awarded the Swedish company a 5G contract.
Ericsson on 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. Such assets, essentially tax credits, are worth less at the lower tax rate. Ericsson said the estimated impact will be a noncash charge of about 1 billion kronor.
Corrections & Amplifications An earlier version of this article misspelled Chief Executive Börje Ekholm's last name as Ekhom. (Jan. 16, 2018)
Write to Stu Woo at Stu.Woo@wsj.com
(END) Dow Jones Newswires
January 17, 2018 02:47 ET (07:47 GMT)