Ericsson Stock Drops On Weak Q2, Cautious View On Q3 Networks Margin

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(RTTNews) - Shares of LM Ericsson were losing around 8 percent in Sweden as well as in the pre-market activity on the Nasdaq, after the Swedish telecom major reported Tuesday lower second-quarter profit and sales, mainly due to weak Networks and Enterprise performance.

Further, the firm warned on some pressure on Networks adjusted gross margin in the third quarter due to higher volumes of network rollout projects.

Looking ahead, the company said it enters the next phase from a position of strength, aimed to capitalize as AI increasingly moves into the physical world.

Regarding the action taken to mitigate component cost inflation, the company said, "As the impact builds in the coming quarters, we will continue to pursue internal measures and pricing actions to help offset the effect."

In the second quarter, net income dropped 12 percent to 4.08 billion Swedish kronor from last year's 4.63 billion kronor. Earnings per share fell 11 percent to 1.22 kronor from 1.37 kronor a year ago.

Adjusted EBITA was 6.88 billion kronor, down 7 percent from the prior year. Adjusted EBITA margin declined to 13.1 percent from 13.2 percent last year, despite a continued strong margin expansion in Cloud Software and Services.

Adjusted gross margin was 48 percent, up by 2 percentage points after normalizing for the one-off benefit of the IPR settlement last year.

Net sales were 52.69 billion kronor, 6 percent lower than 56.13 billion kronor a year ago.

Networks sales declined by 8 percent to 33.0 billion kronor and Enterprise sales fell 19 percent year-over-year to 4.5 billion kronor mainly driven by a 1.0 billion kronor impact from the divestment of iconectiv in 2025.

However, Cloud Software and Services sales increased 3 percent to 14.7 billion kronor.

Organic sales decreased 1 percent year-over-year, primarily due to lower IPR licensing revenues, reflecting a non-recurring benefit from a partial settlement in the prior year period.

The company noted that organic sales grew in three out of four market areas. Organic sales grew in market areas North East Asia, South East Asia, Oceania and India and in market area Europe, Middle East and Africa. Meanwhile, sales in market area Americas declined 1 percent.

In pre-market activity on Nasdaq, Ericsson shares were trading at $10.69, down 8.8 percent, after closing Monday's regular trading 3.3 percent higher.

In Stockholm, the shares were trading at 103.80 kronor, down 7.49 percent.

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