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Ericsson Is Paying for Failed Venture

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Revenue Manager suffered demand shortage

In 2016, Ericsson (ERIC) made a bet that customers would like a full-stack business support system and launched a product called Revenue Manager. But two years down the line, Ericsson realized that Revenue Manager had become an unnecessary burden. So the company announced in January that it would scrap the product and focus on something else with brighter prospects.

But abandoning Revenue Manager isn’t cheap. Ericsson took a nearly $700 million charge related to scrapping the product in 2018 and said it expected to take another hit of around $170 million due to the changes in 2019.

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Ericsson compensating Veon

Ericsson said the bulk of the costs associated with the changes included customer compensations and a write-down of intangible assets. Last month, service provider Veon (VEON) announced the revision of its agreement with Ericsson regarding Revenue Manager and said it would receive $350 million from the vendor as a result of the revision in the first half of 2019.

$4.0 billion cash stockpile

Can Ericsson meet the costs of retiring Revenue Manager and continue investing in future growth? Ericsson exited 2018 with around $4.0 billion in cash.

Ericsson and Nokia (NOK) have been raising funds to finance their 5G research programs. Last year, the companies secured loans from several European lenders to spend on 5G research. Ericsson and Nokia are banking big on 5G to drive their revenue growth and profitability. Ericsson has already picked up 5G equipment contracts from operators including T-Mobile (TMUS) and US Cellular (USM). The company has also been selected alongside Nokia and Samsung (SSNLF) to supply AT&T’s (T) 5G rollout project.

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