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Ericsson Reports $1 Billion Quarterly Loss Due to Vonage Write-Down, but Sees Boost in North American Sales

2024-07-29 22:00:18.786000

Swedish telecommunications equipment manufacturer Ericsson reported a $1.0 billion quarterly loss after writing down the value of its purchase of cloud-based communications operator Vonage. Ericsson acquired Vonage in 2022 for $6.2 billion, but already wrote down its value by $2.9 billion last year. Another write down of 11.4 billion Swedish kronor ($1.1 billion), mostly attributable to Vonage, was behind the 1.0 billion kronor loss in the second quarter. Ericsson's second quarter adjusted operating profit rose by 10 percent from the same period last year to 4.1 billion kronor. Sales, however, slid by 7 percent in the April-June period to 59.8 billion kronor, although they rose by 14 percent in the North American market.

Ericsson CEO Borje Ekholm defended the acquisition, stating that Vonage remains foundational to build out a global platform for network APIs and drive future growth in the telecoms industry. Ekholm also noted that market growth slowing was the reason for the write down. Ericsson, along with Nokia and Huawei, dominates the market for 5G mobile network communications equipment, and the Vonage acquisition was aimed at diversifying into a growth market. Ericsson announced 1,200 job cuts in Sweden in March and has already announced 8,500 job cuts throughout last year to reduce costs.

Despite the quarterly loss, Ericsson reported better-than-expected revenue with a 7% year-on-year drop in overall revenue but a 15% increase in North American sales. The firm reported second-quarter revenue of 59.85 billion Swedish kronor ($5.68 billion) and a net loss of SEK11.0 billion. Net sales in North America were up 15% to SEK16.6 billion. Ericsson CEO Börje Ekholm expects market conditions to remain challenging this year but anticipates a boost in sales during the second half from contract deliveries in North America. Ericsson ADRs rose 4.2% to $6.66 and are up almost 6% year-to-date.

SBA Communications, a tower leasing company, has cut its annual revenue forecast for the second time this year. The company cited high interest rates and slower 5G leasing activity as the reasons for the downward revision. SBA Communications' revenue fell about 3% to $660.5 million, missing analysts' estimates. High-interest rates have led wireless carriers like AT&T, T-Mobile US, and Verizon Communications to tighten their budgets, slowing demand for tower leasing companies like SBA Communications. The company revised its annual revenue forecast downward to between $2.64 billion and $2.67 billion. The impact of strained budgets and tightened belts on the tower leasing market may also affect competitors like Crown Castle and American Tower. The slowdown in the rollout of 5G technology, which was expected to be a significant growth driver, is a concern. The 5G hype is meeting financial reality as high interest rates and budget constraints reveal a more cautious market. Technological advancements must align with financial feasibility to sustain market enthusiasm. [5deb5df0] [361acae5] [9e26146b]

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