(Bloomberg) -- Ericsson AB warned investors that it would take an 11.4 billion Swedish kronor ($1.1 billion) non-cash impairment in the second quarter after Vonage Holdings Corp.’s performance deteriorated, the second major writedown on the asset in less than a year. 

The Swedish telecommunications network company has “reassessed certain growth assumptions” after the market for its services worsened and it redirected its investments, Ericsson said in a statement late on Wednesday.  

Ericsson had also recorded a $3 billion writedown from the deal in October. It’s now written down approximately two-thirds of the value of the $6.2 billion acquisition, its largest ever. The company agreed to acquire Vonage, which sells so-called voice-over-IP services that let customers and businesses make calls via the cloud, in 2021.

“This confirms the thesis of Ericsson having significantly overpaid for the unit in 2021,” Mads Lindegaard Rosendal, senior analyst at Danske Bank Credit Research, said in a note on Thursday.

Ericsson said at the time of the deal — when applications like Zoom were taking off in the pandemic — that it wanted to take advantage of Vonage’s communications platform. The company’s service would let developers embed messaging, voice and video into their applications, which was predicted to grow with the expansion of 5G mobile networks and cloud computing use.

What Bloomberg Intelligence Says: 

Ericsson’s decision to book a $1.1 billion (11.4 billion kronor) impairment against its Vonage unit — adding to a $2.9 billion charge in 2023 — further sets back its goal to expand medium-term sales and profit by diversifying into enterprise 5G solutions. The nascent market is proving very slow to materialize. 

— Matthew Bloxham, BI telecoms and media analyst

“We continue to advance our strategy to build a global network platform for network APIs, which was the strategic impetus for the Vonage acquisition,” said Niklas Heuveldop, who took over as Vonage’s chief executive officer this year. “We recently announced additional partnerships with leading mobile network operators and we see continued positive momentum across the industry.”

Ericsson shares fell 0.8% to 65.48 kronor at 9:39 a.m. on Thursday in Stockholm. The stock had gained 3.8% this year.

 

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