Admits in quarterly results it faces unpredictable punishment
Ericsson has admitted that it cannot predict the scale of the fine it faces from US regulators in punishment for its evasions during an investigation into an allegation of bribery in Iraq. The revelation comes in its report of its first quarterly earnings. The report also signals that Ericsson has suspended business in Russia, but earlier reports suggested there would be no financial losses to Ericsson for this stance on Russia.
The Iraq misconduct allegations “started at least back in 2011” and it was in February 2022 that internal investigation had found it may have made payments to the Islamic State militant group in Iraq. Shares in Ericsson tumbled 7% in early Thursday trade, Reuters said, bringing the equipment maker’s stock’s losses to 30% since news of the scandal broke.
The US Department of Justice (DoJ) now has a range of options, Ericsson said. These “may likely include additional monetary payments,” said CEO Borje Ekholm said in an official statement and that Ericsson cannot reliably estimate the size of the fine.
Ericsson reported an 11% drop in adjusted operating earnings for the first quarter to 4.7 billion Swedish crowns (€458.46 million). Ericsson said the provision for its indefinite suspension of business in Russia over the invasion of Ukraine cost it €87.12 million.
It is also embroiled in patent litigation with Apple which has delayed the renewal of a 1 billion crown annual software contract. But revenue rose 11% to 55.1 billion crowns on higher demand for 5G telecom equipment, beating estimates of 53.36 billion crowns.
A new US DoJ fine would add to the $1 billion fine the DOJ collected in 2019 to settle bribery cases in several countries. At the time, Ericsson also agreed to supervision by the regulators for three years. “A fine is, in our view, the best Ericsson can hope for, as much worse scenarios have been discussed in the market recently,” Mads Rosendal, analyst at Danske Bank Credit Research, told Reuters.