Ericsson says it will record a $1.2 billion charge after writing down the value of its 50 percent stake in chip venture ST-Ericsson.
The telecom network equipment maker announced today that it would take an 8 billion crown ($1.2 billion) charge on its ST-Ericsson chip-making venture after the firm's partner, STMicro, said it would be pulling out of the unprofitable JV.
The downgraded valuation of ST-Ericsson, the joint venture between STMicro and Ericsson launched in 2009, will impact on Ericsson's Q4 results as a non-cash charge, with no tax effect. According to the firm, the $1.2 billion figure reflects the "current best estimate" of Ericsson's 50 percent stake, and includes additional charges relating to the "available strategic options for the future of the ST-Ericsson assets."
The two firms began a strategic review of ST-Ericsson in October, and STMicro announced its intentions to exit as a shareholder on December 10, 2012. However, Ericsson says that the joint venture's assets -- including technological development within telecoms and networking -- has strategic value for the wireless industry. In particular, the telecoms equipment maker wants to introduce new LTE modems into the marketplace, which the firm believes will be "very competitive."
The company says acquiring a full majority stake "is not an option," but will continue to review different options. Additional details will be provided in Ericsson's Q4 financial report.
Ericsson estimates that the joint venture will need a further loan of roughly 3 billion crowns in 2013, which will not help the ailing firm balance its bank sheet. In Q3, the firm reported profits tumbling by 42 percent, and it continues to deal with a slowdown in sales due to a fragile economy and the bleak business outlook for its key customers, including Nokia.