Ericsson profit beats estimates, signals price hikes to customers
Ericsson's second-quarter profit beat expectations despite a 6% revenue drop, but the Swedish equipment maker warned that surging semiconductor costs will force it to raise prices for telecom operators.
Ericsson reported a 6% decline in second-quarter revenue to SEK 52.7bn, down from SEK 56.1bn a year ago, hit by weaker patent licensing income and currency headwinds. Adjusted operating profit moved in the opposite direction, reaching SEK 6.52bn to beat analyst expectations of SEK 6.42bn. The company's adjusted gross margin rose to 48% once a prior-year intellectual property settlement is excluded.
For European telecom operators, the results carry a clear pricing warning. While Ericsson’s Cloud Software and Services division posted 3% growth to SEK 14.7bn—driven partly by core network upgrades across Europe—underlying costs are rising. Chief executive Börje Ekholm cautioned that the Networks segment’s adjusted gross margin will face pressure in the third quarter as higher volumes of rollout projects come through.
The margin squeeze stems from a global semiconductor shortage initially driven by budget smartphones but now affecting radio equipment. “We took action to mitigate component cost inflation,” Ekholm said. “As the impact builds in the coming quarters, we will continue to pursue internal measures and pricing actions to help offset the effect.”
Those pricing actions effectively mean Ericsson intends to pass higher input costs directly onto its customers. Because the Swedish vendor cannot compete with tech giants and hyperscalers for the same silicon wafers on volume, it is forced to pass on the price. This dynamic signals that the cost of upgrading European mobile networks is set to increase.
The flagship Networks division saw revenue fall 8% to SEK 33.0bn, a drop attributed to the licensing shortfall rather than weak hardware demand. Meanwhile, the Enterprise division dropped 19% to SEK 4.5bn, though SEK 1.0bn of that decline simply reflects the absence of iconectiv, a business divested last year.
Geographically, the quarter was subdued. South East Asia, Oceania, and India posted 4% organic growth, but reported revenue there still slipped 2% to SEK 5.4bn due to currency movements. India's share of global revenue fell to 4% from 8% in the first quarter, a swing the company attributes to the lumpiness of project timing rather than a demand collapse.
Ericsson did not separate the exact impact of currency from the structural timing of its patent deals. The company remains in a slow phase of a long cycle, managing the wind-down of its North American build-out while investing in 6G research. Investors will focus on the upcoming third-quarter results in October, where the guidance on Networks margins will indicate just how much of these silicon costs European telecoms will ultimately have to absorb.
