The purging of the Ericsson Augean stables continues with a $1.6 billion goodwill write-down. Will this be the last one?
The full write-down revealed by Ericsson amounts to SEK 14.2 billion, which equates to around $1.8 billion. The ordure is apportioned as follows:
Segment Digital Services: impairment of SEK 6.7 b. of goodwill and SEK 0.4 b. of intangible assets
Segment Other: impairment of SEK 6.0 b. of goodwill, SEK 0.3 b. of intangible assets, and SEK 0.4 b. of fixed assets
Segment Managed Services: impairment of SEK 0.3 b. of deferred costs related to termination of certain transformation activities
Segment Networks: impairment of SEK 0.2 b. of capitalized development expenses related to technologies that are no longer planned to be used
So it’s basically all Digital Services and Other’s fault. Digital Services is essentially cloud stuff and Other is mainly the problematic media division. Ericsson is keen to stress that ‘the majority of goodwill originates from investments made 10 years ago or more, and has limited relevance for Ericsson’s business going forward.’ Ultimately Ericsson is formally booking many of its diversification initiatives over the past decade as failures.
To be fair Ericsson did warn that its labours were not complete at its gloomy Capital Markets Day last November. CEO Ekholm seems determined to draw a line under the Vestberg era and start rebuilding from a solid platform. This is sensible but tests the nerve of investors as he continues to lower the floor for this platform. They seem to be taking this one in their stride, however, with Ericsson’s share price pretty much unaffected by the announcement.