STOCKHOLM (Reuters) – 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 cashflow.
Once the world’s biggest manufacturer of mobile network gear, Ericsson has been hit by competition from Huawei and Nokia while telecom operator spending has slumped ahead of the roll-out of next-generation 5G technology.
Ericsson, which has cut costs and reorganized 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,” Ericsson’s Chief Financial Officer Carl Mellander told Reuters.
Ericsson said it will announce the outcome of its goodwill review before it publishes its fourth-quarter report.
The segments Digital Services and Other, which houses its media business, had around 20 billion crowns ($2.35 billion) in goodwill and acquisition-related intangible assets in the third quarter, versus around 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 crowns in the first three quarters of the year while its Other segment made a loss of 4.1 billion crowns during the same period.
Ericsson said an impairment would affect its operating income but not cashflow, adding that its cash position was strong and its shares were up 0.1 percent by 0955 GMT.
This underperformed a 1.2 percent gain in the Stockholm blue chip index and a 1.1 percent rise in Nokia shares.
($1 = 8.5098 Swedish crowns)
Reporting by Olof Swahnberg; editing by Niklas Pollard and Alexander Smith