Ericsson pre-announces Vonage impairment charge of $2.92 billion

Ericsson must be hoping (and praying) that its investment in Vonage and its bet that network application programming interfaces (APIs) really take off, because things aren’t looking so good for that investment in the short term.

Yesterday, Ericsson said that it will record an impairment charge of $2.92 billion (SEK 32 billion) in its third quarter 2023, related to the impairment of goodwill attributed to the Vonage acquisition.  Ericsson acquired the New Jersey-based cloud communications provider Vonage Holdings in 2022 for about $6.2 billon.

Ericsson said the impairment charge represents 50% of the total amount of goodwill and other intangible assets attributed to Vonage. 

“The impairment is a consequence of the significant drop in the market capitalization of Vonage’s publicly traded peers, increased interest rates and overall slowdown in Vonage’s core markets,” wrote Ericsson.

The impairment will be reported in Ericsson’s Enterprise segment.

The company added, “Ericsson continues to advance its enterprise strategy, with Vonage’s network API capabilities being central to this strategy and the development of a Global Network Platform (GNP). The impairment does not alter Ericsson’s positive outlook on the GNP market potential.”

Just this week at the Telecom Infra Project (TIP) event in Madrid, Spain, Ericsson Head of Business Area Networks Fredrik Jejdling mentioned Vonage and said Ericsson’s expertise in building networks, combined with Vonage’s APIs will generate a more agile way of exposing network functions to developers and will be a part of the strategy for service providers to monetize 5G.

Today, Ericsson said Vonage remains key to its strategy to expand in its Enterprise business, and Ericsson expects the first revenues from network APIs, during 2023.

Q3 pre-report

In addition to the bad news about the Vonage impairment, Ericsson yesterday also pre-reported some third quarter 2023 numbers, and the news there isn’t positive, either.

It said group organic sales (adjusted for currency) declined by 10%, with a 16% decline in Networks partly offset by 5% growth in Cloud Software and Services and 10% growth in Enterprise.

Networks sales were down by 60% in North America year over year, with operators reducing their capex spend and adjusting inventories.

“It is worth noting that Q3 last year was a record quarter in North America,” said the company. “The sharp decline in North America was partly offset by strong sales in India.”

Ericsson will report its full Q3 earnings next week.

Of last night's news about Vonage and the earnings pre-report, New Street Research analyst Pierre Ferragu wrote, "We don’t expect an improvement until the second half of the decade." And of the RAN market in general Ferragu wrote, "We expect the RAN market to decline 15-20% peak-to-trough, and only expect positive sales revisions to come with early 6G momentum."