The digital goodwill impairment does not however impact its cashflow.
On Friday, Swedish mobile network equipment maker Ericsson stated it may have to cash-in on a goodwill impairment in its struggling media and digital services businesses. Although the move may potentially hit its operating income, its cashflow however has been safeguarded.
Ahead of the roll-out of the next generation 5G technology, Ericsson, a big player in the mobile network gear market, is facing strong competition from its peers including Huawei and Nokia.
In response to a slowdown in the market, Ericsson has further streamlined its operations, cut costs and reorganized itself.
On Friday, in a statement revolving around its financials, it said it will re-state its financials to reflect its new structure, which has uncovered potential need for impairments.
“If it turns out that we make an impairment of goodwill, we want to stress that it would not be due to the business in the (fourth) quarter but rather due to accounting matters,” said Carl Mellander, Ericsson’s Chief Financial Officer.
The company stated it will announce the outcome of its goodwill review before it publishes its fourth-quarter report.
Incidentally, its Digital Services and Other segment which houses its media business, had nearly $2.35 billion (20 billion crowns) in goodwill and acquisition-related intangible assets in the third quarter, as opposed to there being 45 billion for the entire group.
As per Lars Soderfjell, a portfolio manager at Alandsbanken, he isn’t surprised by Ericsson’s move given its performance.
In this financial year, Ericsson’s Digital Services segment posted an operating loss, excluding restructuring costs, of 6.9 billion crowns in the first three quarters of the year while its Other segment made a loss of 4.1 billion crowns during the same period.
($1 = 8.5098 Swedish crowns)