Ericsson plans SEK 14.2 billion in impairment charges in Q4

Ericsson announced it will take a total of SEK 14.2 billion in impairment charges in its Q4 2017 results. In addition to writing down the value of old assets, the company will take a charge for the corporate tax reform in the US. The one-time items are expected to leave the company deep in the red for 2017.

The company flagged the likelihood of asset writedowns already at its Capital Markets Day in November. Ericsson said the majority of the charges are on goodwill acquired over 10 years ago and with little relevance for the business going forward. 

The total impairment charges of SEK 14.2 billion include SEK 6.7 billion for the segment Digital Services, of which SEK 6.7 billion of goodwill and SEK 0.4 billion of intangible assets; another SEK 6.0 billion of goodwill, SEK 0.3 billion of intangible assets and SEK 0.4 billion of fixed assets in the segment 'Other'; SEK 0.3 billion of deferred costs related to termination of certain transformation activities in the Managed Services unit; and SEK 0.2 billion of capitalized development expenses in Networks related to technologies that are no longer planned to be used. 

In addition, the lowering of the US corporate income tax rate from 35 to 21 percent from the start of this year requires a writedown in the value of the company's US deferred tax assets. This is expected to lead to a non-cash charge of SEK 1.0 billion. 

The impairments and the tax asset revaluation will impact reported net income in Q4 2017, but have no impact on Ericsson’s cash flow and cash position. Ericsson said its gross and net cash position remain strong.