Ericsson Shares Slump as It Starts Legal Fight With Samsung

Ericsson is suing Samsung Electronics Co. Ltd. in the U.S., in a dispute that alleges the South Korean telecoms giant hasn’t followed a licensing agreement between the two companies.

The case will address alleged breaches of certain obligations by Samsung “and seeks to obtain a ruling by the court that Ericsson has complied with its own commitments,” according to a statement on Friday.

As several of the company’s licensing deals will expire next year, Ericsson says it faces a risk of delayed royalty payments while the agreements are renegotiated. Its shares fell as much as 8.2% after trading started in Stockholm, the company’s biggest slump since March.

A spokesperson for Samsung told Bloomberg News that once the complaint is received, “we will review it and determine an appropriate response.”

Ericsson Shares Slump as It Starts Legal Fight With Samsung

Friday’s news helps explain Ericsson’s “vague 2021 guidance at the recent capital markets day,” Handelsbanken analysts said in a client note.

“A deferral of close to half of Ericsson’s quarterly IPR [intellectual property rights] revenues corresponds to roughly 20-25% of the quarterly adjusted Ebit,” the analysts said.

The Swedish telecoms firm says the processes risk denting its operating income by as much as 1.5 billion kronor ($178 million) next quarter, due in part to litigation costs. It also said “current geopolitical conditions” and the transition to 5G technology are hampering handset sales, which will lead to lower licensing revenue.

The lawsuit was filed in Marshall, Texas, a court known for being friendly to patent owners and its relative speed in handling disputes.

The case is Ericsson Inc. v. Samsung Electronics Co., 20-380, U.S. District Court for the Eastern District of Texas (Marshall).

©2020 Bloomberg L.P.

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