Ericsson shares fall in Stockholm following disappointing quarterly results and a warning over component costs
Results were down in the second quarter, but profits were slightly higher than expected, whilst revenue was lower than forecast
(Il Sole 24 Ore Radiocor) - Ericsson falls on the Stockholm Stock Exchange, weighed down by a generally disappointing quarterly result and a warning about rising component costs. Shares in the telecoms equipment manufacturer fell by more than 10 points, marking their sharpest intraday decline since 24 January 2025, when they lost 12.74 per cent. Ericsson reported a decline in results for the second quarter, though profits were slightly higher than expected, whilst revenue fell short of forecasts.
The group also indicated that pressure on margins in the Networks division, due to rising component costs, is likely to intensify in the second half of the year. The group reported a 12% fall in net profit to 4.1 billion Swedish kronor in the second quarter, with earnings per share of 1.22 kronor (-11%) and a 7% fall in adjusted EBITA to 6.9 billion, with the margin down 0.1 percentage points to 13.1 per cent; however, the figure still exceeded analysts’ estimates by around 3 per cent. Revenue contracted by 6% to 52.69 billion (-1% on an organic basis), coming in around 2% below analysts’ estimates. Sales in the Networks segment fell by 8% to 33 billion kronor.
Sales of software and cloud services rose by 3 per cent to 14.7 billion, whilst the Enterprise segment saw a 19% decline, coming in at 4.5 billion, “mainly due to a negative impact of 1 billion kronor” from the disposal of assets, the group stated. Furthermore, according to Ericsson, the decline in organic sales was mainly due to a fall in patent-related revenue, reflecting a non-recurring income item in the same period of the previous year. The gross margin fell to 45.8% (from 47.5%), affected by the decline in the Networks, Software and Cloud Services divisions because “restructuring costs more than offset the benefits of cost-cutting measures and improved operational efficiency”, the group explained.
As for the outlook, “there remains growing uncertainty regarding the outlook and the broader macroeconomic and geopolitical context”, according to the earnings release, which forecasts an adjusted gross margin in the third quarter of between 48 per cent and 50 per cent (down from 48.4 per cent in the second quarter), below analysts’ estimates. The group expects that “restructuring costs for 2026 will be high”. The market also took note of CEO Borje Ekholm’s comments. “In the second quarter, we took measures to mitigate component cost inflation. As the impact will be felt in the coming quarters, we will continue to pursue internal measures and pricing actions to help offset the effect. We also expect some pressure on Networks’ adjusted gross margin in the third quarter due to higher volumes of network deployment projects”, said Ericsson’s CEO.
"Overall, the networking division performed just adequately, whilst software and cloud services helped to improve profitability," summarise the analysts at AlphaValue. "The company has also indicated that in the coming quarters further increases in component costs are expected, due to the conflict between the United States and Iran and the cost of memory," AlphaValue noted. Jefferies warns that the continued rise in component prices could have a greater impact on the fourth-quarter gross margin, depending on the effectiveness of the mitigation measures implemented, including price increases. Barclays believes that Ericsson has once again demonstrated the resilience of its margins, but warns that difficulties will intensify in the second half of the year.
