STOCKHOLM • Ericsson AB will need to write down assets related to its business in China, resulting in a 1 billion krona (RM462 million) hit to the Swedish telecoms giant.

“Overall, Ericsson’s 5G business in China is expected to have healthy profitability over the life of the contracts,” the company said yesterday. “However, the margins during the second quarter of 2020 (2Q20) are expected to be negative due to high initial costs for new products.”

Ericsson said the cost is part of a broader strategy to expand its presence within the all-important market for 5G technology. News of the writedowns comes as the company secures agreements with three major operators in China, where it expects to achieve “healthy profitability”, according to yesterday’s statement.

Analysts at Bloomberg Intelligence estimate that Ericsson will be able to add about 3%-4% to its revenue this year as it builds its 5G presence across the globe. Ericsson said it’s sticking with its latest financial targets for 2020 and 2022.

The writedown is tied to pre-commercial product inventory for the Chinese market, with the cost set to be reported in its segment networks unit in 2Q20, Ericcson said. — Bloomberg