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Ericsson (ERIC) to Report SEK 11.4B Non-cash Impairment Expense
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Ericsson (ERIC - Free Report) recently revealed that it is set to record a significant non-cash impairment charge of SEK 11.4 billion in its second-quarter 2024 results. This impairment, primarily attributed to the acquisition of Vonage, aligns with the IFRS accounting principles.
The impairment charge highlights Ericsson's recognition of lower anticipated market growth rates in Vonage's existing portfolio. The net income impact post tax is going to be SEK 11.4 billion, which is reported under the Enterprise segment.
Ericsson cited that building a Global Network Platform for network APIs was the driving force behind Vonage’s acquisition. The strategy aims to make advanced 5G network capabilities available to the global developer community. This initiative is designed to accelerate the innovation of value-added applications for industry and society, ultimately unlocking new revenue streams for ERIC's operator customers and driving growth in the telecom sector.
Stockholm, Sweden-based Ericsson is one of the leading providers of communication networks, telecom services and support solutions. As part of its restructuring plans, the company has reorganized its operations into four segments effective third-quarter 2022, namely Networks, Cloud Software and Services, Enterprise and Other.
Ericsson has acquired Vonage in July 2022. Through this acquisition, ERIC aimed to augment its 5G footprint in the telecom industry. In 2023, the company witnessed solid net sales growth in the Enterprise segment, driven by the acquired Vonage businesses.
In the last reported quarter, Ericsson’s revenues plunged 15% year over year to SEK 53.3 billion ($5.13 billion), missing the consensus mark by 3.8%. The slowdown in the Networks Segment, coupled with a notable sales decline in the South East Asia and Oceania region and normalization of 5G investments in India, led to the top-line contraction.
Revenues from the Enterprise business remained flat at SEK 6 billion ($577 million), at par with the prior year’s figure. Net Sales fell short of our revenue estimate of SEK 8.5 billion. The company witnessed growth in both Cradlepoint and Private Cellular with higher sales of Enterprise Wireless Solutions. However, declining sales in the Global Communication Platform reversed the positive trend. Gross margin, excluding restructuring charges, was 48.1%, up from 47.6% in the year-ago quarter.
Ericsson continues to invest in the Enterprise business to make it a sizeable part of its business in a few years. The company introduced on-demand network slicing capability in Android 14 devices. It empowers developers to enhance the flexibility of applications and allows service providers to better align network connectivity with user-specific requirements.
The stock has gained 16.4% over the past year compared with the industry’s growth of 46.4%.
Image Source: Zacks Investment Research
Zacks Rank & Stocks to Consider
Ericsson currently carries a Zacks Rank #3 (Hold).
Arista Networks, Inc. (ANET - Free Report) , carrying a Zacks Rank #2 (Buy) at present, is likely to benefit from strong momentum and diversification across its top verticals and product lines. The company has a software-driven, data-centric approach to help customers build their cloud architecture and enhance their cloud experience. Arista has a long-term earnings growth expectation of 15.68% and delivered an earnings surprise of 16.07%, on average, in the trailing four quarters. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
It holds a leadership position in 100-gigabit Ethernet switching share in port for the high-speed datacenter segment. Arista is increasingly gaining market traction in 200 and 400-gig high-performance switching products and remains well-positioned for healthy growth in data-driven cloud networking business with proactive platforms and predictive operations.
Motorola Solutions Inc. (MSI - Free Report) provides services and solutions to government segments and public safety programs, along with large enterprises and wireless infrastructure services. Currently, Motorola carries a Zacks Rank #2 at present.
It delivered a trailing four-quarter average earnings surprise of 7.54% and has a long-term growth expectation of 9.47%. In the last reported quarter, Motorola delivered an earnings surprise of 11.51%.
Silicon Motion Technology Corporation (SIMO - Free Report) , sporting a Zacks Rank #1 at present, delivered a trailing four-quarter average earnings surprise of 4.72%.
It is a leading developer of microcontroller ICs for NAND flash storage devices. The semiconductor company also designs, develops and markets high-performance, low-power semiconductor solutions for original equipment manufacturers and other customers.
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Ericsson (ERIC) to Report SEK 11.4B Non-cash Impairment Expense
Ericsson (ERIC - Free Report) recently revealed that it is set to record a significant non-cash impairment charge of SEK 11.4 billion in its second-quarter 2024 results. This impairment, primarily attributed to the acquisition of Vonage, aligns with the IFRS accounting principles.
The impairment charge highlights Ericsson's recognition of lower anticipated market growth rates in Vonage's existing portfolio. The net income impact post tax is going to be SEK 11.4 billion, which is reported under the Enterprise segment.
Ericsson cited that building a Global Network Platform for network APIs was the driving force behind Vonage’s acquisition. The strategy aims to make advanced 5G network capabilities available to the global developer community. This initiative is designed to accelerate the innovation of value-added applications for industry and society, ultimately unlocking new revenue streams for ERIC's operator customers and driving growth in the telecom sector.
Stockholm, Sweden-based Ericsson is one of the leading providers of communication networks, telecom services and support solutions. As part of its restructuring plans, the company has reorganized its operations into four segments effective third-quarter 2022, namely Networks, Cloud Software and Services, Enterprise and Other.
Ericsson has acquired Vonage in July 2022. Through this acquisition, ERIC aimed to augment its 5G footprint in the telecom industry. In 2023, the company witnessed solid net sales growth in the Enterprise segment, driven by the acquired Vonage businesses.
In the last reported quarter, Ericsson’s revenues plunged 15% year over year to SEK 53.3 billion ($5.13 billion), missing the consensus mark by 3.8%. The slowdown in the Networks Segment, coupled with a notable sales decline in the South East Asia and Oceania region and normalization of 5G investments in India, led to the top-line contraction.
Revenues from the Enterprise business remained flat at SEK 6 billion ($577 million), at par with the prior year’s figure. Net Sales fell short of our revenue estimate of SEK 8.5 billion. The company witnessed growth in both Cradlepoint and Private Cellular with higher sales of Enterprise Wireless Solutions. However, declining sales in the Global Communication Platform reversed the positive trend. Gross margin, excluding restructuring charges, was 48.1%, up from 47.6% in the year-ago quarter.
Ericsson continues to invest in the Enterprise business to make it a sizeable part of its business in a few years. The company introduced on-demand network slicing capability in Android 14 devices. It empowers developers to enhance the flexibility of applications and allows service providers to better align network connectivity with user-specific requirements.
The stock has gained 16.4% over the past year compared with the industry’s growth of 46.4%.
Image Source: Zacks Investment Research
Zacks Rank & Stocks to Consider
Ericsson currently carries a Zacks Rank #3 (Hold).
Arista Networks, Inc. (ANET - Free Report) , carrying a Zacks Rank #2 (Buy) at present, is likely to benefit from strong momentum and diversification across its top verticals and product lines. The company has a software-driven, data-centric approach to help customers build their cloud architecture and enhance their cloud experience. Arista has a long-term earnings growth expectation of 15.68% and delivered an earnings surprise of 16.07%, on average, in the trailing four quarters. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
It holds a leadership position in 100-gigabit Ethernet switching share in port for the high-speed datacenter segment. Arista is increasingly gaining market traction in 200 and 400-gig high-performance switching products and remains well-positioned for healthy growth in data-driven cloud networking business with proactive platforms and predictive operations.
Motorola Solutions Inc. (MSI - Free Report) provides services and solutions to government segments and public safety programs, along with large enterprises and wireless infrastructure services. Currently, Motorola carries a Zacks Rank #2 at present.
It delivered a trailing four-quarter average earnings surprise of 7.54% and has a long-term growth expectation of 9.47%. In the last reported quarter, Motorola delivered an earnings surprise of 11.51%.
Silicon Motion Technology Corporation (SIMO - Free Report) , sporting a Zacks Rank #1 at present, delivered a trailing four-quarter average earnings surprise of 4.72%.
It is a leading developer of microcontroller ICs for NAND flash storage devices. The semiconductor company also designs, develops and markets high-performance, low-power semiconductor solutions for original equipment manufacturers and other customers.