Ericsson’s Vonage Approval Covers Meh Q2

Ericsson finally gained U.S. government approval for its long-gestating Vonage Holdings acquisition, which provided a nice distraction to uninspiring second quarter financial numbers. Ericsson finally gained U.S. government approval for its long-gestating Vonage Holdings acquisition, which provided a nice distraction to uninspiring second quarter financial numbers. The ominously sounding Committee on Foreign Investments in the United States (CFIUS) gave a thumbs up to Sweden-based Ericsson’s $6.2 billion acquisition of New Jersey-based Vonage. The CFIUS approval was the last regulatory hurdle in front of the deal and Ericsson said it will close the acquisition no later than July 21. The deal was originally expected to close in late May, but ran into the now resolved regulatory hurdles. Vonage had granted Ericsson a three-month extension to close the deal. Despite analyst questions about Ericsson paying its largest amount ever for an outside purchase, the vendor is looking to use Vonage to further boost its enterprise plans. When initially announced late last year, Ericsson pointed to Vonage’s APIs and footprint of at least 1 million registered developers globally as core assets it intends to leverage and integrate into its platforms for enterprises. “Vonage creates impetus for the second leg of our strategy, developing a global open network innovation platform,” Ericsson CEO Börje Ekholm said on a conference call. “Our shared intent with Vonage is to develop a platform that allows developers to access network capabilities, which literally puts the power of the wireless networks at their fingertips.” Ericsson seemed to have doubled down on those efforts in May when the vendor upended its organization structure to highlight a focus on cloud and enterprise markets. That move will group Ericsson’s current Cradlepoint business, Dedicated Networks operations, and the Vonage assets into a new Business Area Enterprise Wireless Solutions division. This new division will focus on developing products and services for enterprises and oversee a dedicated go-to-market organization for enterprise customers that leverages Ericsson’s service provider relationships. This aligns with Ericsson’s increased push into private 5G networks. That push could be welcome for Ericsson, which posted second-quarter operating results that mirrored blasé Q1 numbers and continued the vendor’s promise of a better tomorrow, at least operationally. Ericsson’s actual results weren’t that bad, they just weren’t what was expected from the world’s largest telecommunications equipment vendor that should be flourishing due to 5G hype, growing data demand, and a geopolitical advantage in many markets. The vendor did post a robust year-over-year sales surge, which was enough to counter a dip in margins that resulted in a 19% increase in Ericsson’s net income for the quarter. That sales growth came in Ericsson’s strongholds of North America and Europe, which are more advanced in their respective 5G rollouts. Ekholm noted that the vendor’s margin challenge was tied to how it was dealing with ongoing supply chain challenges. While the vendor is confident in how it’s navigating that issue, it’s having to stockpile more equipment, which is impacting its balance sheet. “Ensuring supply in a difficult supply environment is associated with extra costs,” Ekholm said. “However, we see this as a key driver of our ability to actually expand the footprint and strengthen our scale. And from a long-term perspective, we believe this is critical.” Ekholm also said Ericsson was still working with the U.S. Department of Justice and Securities and Exchange Commission regarding their ongoing investigation into corruption charges against the vendor. Ericsson has admitted to multiple incidents of bribery and corruption by its operations in Iraq between 2011 and 2018. Most damning of all, the company said it can’t unequivocally deny that bribes paid by some employees during that period ended up in the hands of the Islamic State. The SEC last month opened an investigation into Ericsson’s handling and reporting of its ongoing corruption issues. Ekholm reiterated that Ericsson was continuing to work with the U.S. agencies on the issues, adding that “a large part” of the vendor’s increased administrative expense during the second quarter was “attributed to investments in ethics and compliance.” “We further need to make sure that we have integrity in all decision-making in the company, as well as we have a prudent approach to risk taking and risk measurements in the company,” Ekholm said. “And we believe that all of those investments that we do in changing the culture as well as our processes and procedures will make Ericsson a stronger and more resilient company in the future.” The executive had previously stated Ericsson was likely looking at a stiff reprimand. “What I can say now is that it’s our assessment that the resolution will likely result in monetary and other measures,” Ekholm said during the vendor’s first-quarter earnings call. “However, the magnitude of these cannot, at this time, be reliably estimated. As this process is ongoing, we remain limited in what we can say about the historical events covered in the Iraq investigation and related matters.”