Ericsson: writes down assets on China 5G deals
(CercleFinance.com) - Swedish telecom giant Ericsson has said that it is cutting the value of its assets because its China 5G contracts are weakening its margins.
In a statement on Monday, the maker of equipment for cellular towers said that its second quarter will be impacted by a cost of around 1 billion Swedish kronor (about 100 million euros) relating to asset write-downs of pre-commercial product inventory for the Chinese market.
Ericsson said that it has increased its market share in China by winning 5G contracts with all three major operators, although noted that the initial gross margin for these deals is negative due to high initial production startup costs.
In its first-quarter earnings report, Ericsson warned that an increasing share of "strategic contracts" was expected to weigh on profitability in the second quarter, primarily driven by a temporary negative gross margin in China.
Yet, the deployment of 5G in China is expected to boost its gross and operating income from the second half of 2020, the group said.
The group is therefore maintaining its financial targets for 2020 and 2022.
The stock was down 1.5% on the the Nasdaq Nordic market on Monday morning.
Copyright (c) 2020 CercleFinance.com. All rights reserved.
In a statement on Monday, the maker of equipment for cellular towers said that its second quarter will be impacted by a cost of around 1 billion Swedish kronor (about 100 million euros) relating to asset write-downs of pre-commercial product inventory for the Chinese market.
Ericsson said that it has increased its market share in China by winning 5G contracts with all three major operators, although noted that the initial gross margin for these deals is negative due to high initial production startup costs.
In its first-quarter earnings report, Ericsson warned that an increasing share of "strategic contracts" was expected to weigh on profitability in the second quarter, primarily driven by a temporary negative gross margin in China.
Yet, the deployment of 5G in China is expected to boost its gross and operating income from the second half of 2020, the group said.
The group is therefore maintaining its financial targets for 2020 and 2022.
The stock was down 1.5% on the the Nasdaq Nordic market on Monday morning.
Copyright (c) 2020 CercleFinance.com. All rights reserved.