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Ericsson to Take $1.2 Billion Charge on STMicro Venture

Thursday, 20 Dec 2012 | 5:58 AM ET
Casper Hedberg | Bloomberg | Getty Images

Ericsson, the world's biggest telecom network equipment maker, will take an 8 billion crown ($1.2 billion) charge on its ST-Ericsson venture, underscoring the uncertainty over the loss-making project after partner STMicro said it was pulling out.

Ericsson has been struggling recently with a slowdown in sales at its core network unit due to competition and a faltering global economy. In October it reported a 42 percent drop in third-quarter core earnings.

Profits have also been squeezed by its loss-making joint-ventures, mobile phone maker Sony Ericsson - which it has sold - and mobile chip maker ST-Ericsson, which has struggled mainly due to the decline of key customer Nokia.

"The charge includes write down of assets to reflect the current best estimate of Ericsson'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.

An Ericsson spokesman said the bulk of the charge, which will be taken in the fourth quarter, came from writing down loans Ericsson has made to ST-Ericsson.

Ericsson shares were down 3.2 percent at 64.20 crowns on Thursday morning.

Ericsson said it was exploring strategic options for ST-Ericsson, but said it would not acquire the remainder of the company from STMicro, which announced earlier this month it would quit the venture.

ST-Ericsson will need around 3 billion crowns of additional funding from Ericsson, mostly coming in 2013, Ericsson added.

ST-Ericsson has been unprofitable since it was formed in 2009 and successive cost-cutting plans have failed to staunch its losses, including an April announcement of 1,700 job cuts and the transfer of some product development to STMicro.

Many of ST-Ericsson's woes can be traced to the decline of its once-biggest customer Nokia, which has lost out in the lucrative smartphone market to the likes of Apple, Samsung and Google.

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