Ericsson braced for 5G blow as it prepares for corruption penalties
Swedish group books provisions of $1.2bn amid contracts battle with Huawei and Nokia
Ericsson said its 5G rollout would take a hit after booking provisions of $1.2bn ahead of the conclusion of US probes into overseas corruption allegations.
The Swedish telecoms equipment company, which competes with Huawei and Nokia for 5G equipment contracts, has been under investigation by US authorities since 2013.
The group said on Thursday it had identified violations of the US Foreign Corrupt Practices Act as well as its own code of ethics in China, Saudi Arabia, Kuwait, Indonesia, Djibouti and Vietnam. Of the total charge, $1bn relates to anticipated penalties and $230m to costs associated with the investigations.
While Ericsson has maintained its financial targets, UBS said the provision would reduce its year-end net cash from SKr19bn to about SKr7bn ($719m).
This will hit Ericsson’s plans as it battles with Nokia and Huawei for 5G contracts. “That is the reality,” Borje Ekholm, chief executive, said on Thursday.
The total provision represents about 4.5 per cent of Ericsson’s market value, slightly higher than expected, according to Citi analysts. The company said it would book the charge in its third quarter and that it expected the matter to be formally resolved by the end of the year.
The Scandinavian telecoms sector has been hit by a series of scandals in recent years. Swedish operator Telia was fined $965m in 2017 by US, Dutch and domestic authorities over claims of bribery in Uzbekistan. Corruption allegations relating to the central Asian country had hit Norway’s Telenor the previous year, with executives forced to stand down.
Ericsson itself agreed last year to a $146,000 settlement after it was found to have breached sanctions on South Sudan.
Mr Ekholm, who has led the company since late 2016, said the $1bn hit would prove an important step in the former industry bellwether’s turnround. “This is a sad chapter in our otherwise proud history,” he said.
Mr Ekholm said 49 of the 65 employees scrutinised in an internal review had left Ericsson as a result. However, he said it was too early to talk about whether authorities would pursue criminal prosecution.
He also said it was “embarrassing” that Ericsson had not taken faster action in 2013 when the US Securities and Exchange Commission launched its investigation, and that the company had missed a number “red flags”. However, he said, the company had vastly tightened its internal compliance processes in the past two years.
“It is fair to say, and maybe it’s a bit cavalier, there are 100,000 people in the company. There were some rogue employees. We needed a system where we can identify them quickly,” he said.
Xavier Dedullen, chief legal officer, said the company had “zero tolerance for corruption”.