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Ericsson expects U.S. fines as digital loss hits $5.6 billion since 2017

Ericsson expects U.S. fines as digital loss hits $5.6 billion since 2017

  • Written by Iain Morris / Light Reading
  • 18th April 2022

“To put it simply, you rock,” was the succinct, uplifting message from Ericsson CEO Börje Ekholm to his roughly 100,000 employees on today’s first-quarter earnings call.

It is not how financial markets currently seem to view the Swedish equipment maker, despite all its successes under Ekholm’s leadership.

Shares were down about 6% in Stockholm this morning after the Ericsson boss warned investors to expect a US fine over a scandal in Iraq, where Ekholm admits former staff may have paid the Islamic State group, a terrorist organization, for the use of roads.

“What I can say is that it is our assessment that it will likely result in monetary measures, but the magnitude cannot be reliably estimated,” the early-rising boss told investors and reporters on an unreliable video link from the US. “We are limited in what we can say about historical events.”

A fine of the same magnitude as the last settlement with the Department of Justice (DoJ) in 2019 would equate to about $1 billion. Worse is the possibility of “other measures.”

Carl Mellander, Ericsson’s chief financial officer, declined to speculate when asked what these could be. The chief risk is that US authorities try to block Ericsson’s $6 billion takeover of Vonage, a move Ericsson has positioned as critical to its future growth strategy.

Before today’s announcement, shares in Ericsson had fallen nearly 24% since February 15, when Ericsson first owned up to misconduct in Iraq.

The company’s Mobile World Congress was overshadowed by the affair as US authorities said Ericsson had breached its deferred prosecution agreement – struck in December 2019 after revelations of earlier misconduct across numerous countries – by failing to make subsequent disclosures.

That same week, the DoJ also told Ericsson that earlier disclosures about conduct in Iraq – made before Ericsson paid the last $1 billion fine – were considered “insufficient.”

At the time of writing, Ericsson’s share price was down 28% on its mid-February level, and today’s dip is a worry given Citibank’s recent warning the stock may become “uninvestable.”

Additional pain points included a cost of 900 million Swedish kroner (US$95 million) on the decision to suspend business “indefinitely” in Russia, where Ericsson generates about 2% of its sales, as well as an unexplained SEK300 million ($32 million) writedown at Ericsson Ventures, the company’s investment fund.

Net income consequently fell 8% for the first quarter, to about SEK2.9 billion ($310 million), compared with the year-earlier period.

Underlying strength

Yet most of the underlying business remains strong. Ericsson was still able to boast an 11% increase in sales, to SEK55.1 billion ($5.8 billion) – although growth was just 3% on a constant-currency basis – along with market share gains in Europe.

Huawei, its main Chinese rival, has fallen out of favor in several countries. Nokia, its main European competitor, has paid the price for earlier 5G product problems.

To read the complete article, visit Light Reading.

 

 

 

Tags: 5G Applications Companies Critical Infrastructure Enterprise Federal Government/Military Funding Interoperability Long Term Evolution (LTE) News Policy Public Safety Public-Safety Broadband/FirstNet Software Standards State & Local Government System Design System Operation Wireless Networks Partner content

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