Ericsson to Take $1.2 Billion Charge on Writedown of Cellphone Venture

In announcing the charge of 8 billion Swedish kronor, or $1.2 billion, Ericsson told investors Thursday that the charge would reduce its earnings in the fourth quarter by a corresponding 8 billion kronor. Shares of Ericsson fell 1.8 percent to 63.15 kronor in Stockholm trading.

ST-Ericsson, created in February 2009 with ST Microelectronics, a French semiconductor maker, has generated $2.7 billion in losses since its start. On Dec. 10, ST Microelectronics said it intended to “exit” the venture after an unspecified transition period.

Ericsson said it did not plan to buy its French partner’s 50 percent stake in ST-Ericsson — a decision that could cast further doubt on the future of the business, which is based in Geneva and employs 5,090 workers.

Bengt Nordstrom, the chief executive of Northstream, a Stockholm-based industry consultant to mobile operators, said that Ericsson, based in Stockholm, could eventually shut down ST-Ericsson after trying to sell it off wholly or in parts. “That is certainly a possibility,” Mr. Nordstrom said.

At the time the venture was announced in August 2008, the two partners predicted that the new company, which combined Ericsson’s mobile platforms business and ST Microelectronic’s ST-NXP wireless businesses, would become a world leader in supplying chips and components to Samsung, Nokia, Sony Ericsson, LG and Sharp.

But ST-Ericsson, which attempted to exploit the value of both partners’ intellectual property and patents on components for 2G and 3G handsets and modems using Long Term Evolution or LTE technology, has never made a profit as it attempted to woo business from industry leaders in Asia and the U.S. component maker Qualcomm.

“We don’t have the kind of silicon industry in Europe that exists in the United States and Asia so this was always a difficult attempt,” Mr. Nordstrom said.

ST-Ericsson’s prospects also deteriorated, Mr. Nordstrom added, after the chief executive of Nokia, Stephen Elop, announced in February 2011 that Nokia would abandon its Symbian smartphone operating system for Microsoft’s Windows system.

ST-Ericsson had supplied components for Nokia’s Symbian handsets and had been one of the venture’s biggest customers, Mr. Nordstrom said.

One of the early pioneers in the mobile industry, Ericsson, whose researchers contributed essential patents to the GSM and 3G wireless standards, retreated from the handset business to focus on network gear. It remains the global leader but faces a challenge from Huawei, its fast-growing Chinese rival.

Ericsson completed its departure from the handset business last January, when it sold its 50 percent stake in the cellphone maker Sony Ericsson to its venture partner, Sony.

In the third quarter, Ericsson said that its profit plunged 42 percent to 2.2 billion kronor with a 600 million-kronor loss attributable to ST-Ericsson.

Ericsson said Thursday that about 5 billion kronor of the earnings charge reflected Ericsson’s new lower valuation of ST-Ericsson, while the remaining 3 billion kronor would be applied in 2013 to cover continued commitments to ST-Ericsson.

“During the process of exploring options, Ericsson will not speculate on the possible outcomes, timelines, and future strategic alternatives for ST-Ericsson assets,” the company said.

Article source: http://www.nytimes.com/2012/12/21/business/global/ericsson-to-take-1-2-billion-charge-on-writedown-of-cellphone-venture.html?partner=rss&emc=rss