Ericsson (NASDAQ:ERIC) (STO:ERIC-A) (STO:ERIC-B), will take an 8 billion crown ($1.2 billion) charge on its ST-Ericsson venture, emphasizing the insecurity over the loss-making project, after partner STMicro said it was pulling back.
Most of the charge, which will be taken in the fourth quarter, came from writing down loans which Ericsson lent to ST- Ericsson, said an Ericsson spokesman.
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“The charge includes write down of assets to reflect the current best estimate of Ericsson (NASDAQ:ERIC) (STO:ERIC-A) (STO:ERIC-B)’s share of the fair market value of the JV (joint venture), as well as additional charges related to the available strategic options for the future of the ST-Ericsson assets,” Ericsson said
The World’s largest telecom maker Ericsson has been belligerent lately with a decline in sales at its core network unit, due to competition and a weak global economy. In October, it disclosed a 42 percent decline in third-quarter core earnings. Profits have also been thinned by its joint venture with mobile maker Sony Ericsson, which is running in loss and the other one, mobile chip maker ST-Ericsson.
Ericsson (NASDAQ:ERIC) (STO:ERIC-A) (STO:ERIC-B) though considering the strategic options for ST-Ericsson, does not plan to buy the rest of the company from STMicro, who declared their intention to quit the venture earlier this month. In a statement, Ericsson also said that it would not acquire the 50% of ST-Ericsson that it does not already own. “To acquire the full majority of ST-Ericsson is…not an option,” it said. That will, however, mean some $458 million more to keep propping up the company anyway in the next year. “Ericsson’s current best estimate is that the implementation of the strategic options at hand will require approximately SEK 3 b. of Ericsson funding, of which the majority in 2013,” it said. ST-Ericsson will need approximately 3 billion crowns of supplementary funding from Ericsson, mostly coming in 2013, Ericsson added.
ST-Ericsson has been making losses since it was shaped in 2009, and sequential cost-cutting plans have been futile to overcome its losses, counting an April declaration of 1,700 job cuts and the handover of some product development to STMicro. Many of ST-Ericsson’s despairs can be drawn from the decline of its once-biggest customer Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V), who have lost their position in the money-spinning smartphone market to the likes of Apple Inc. (NASDAQ:AAPL), Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930) and Google Inc (NASDAQ:GOOG).
Ericsson (NASDAQ:ERIC) (STO:ERIC-A) (STO:ERIC-B) shares were down by 3.2 percent at 64.20 crowns at 3:10 a.m. ET.