Ericsson revenue falls 6% as component costs bite and licensing income dries up

Ericsson booked SEK 52.7bn of revenue in the second quarter, down 6% from SEK 56.1bn a year earlier, as weaker patent licensing income and currency movements outweighed growth in a handful of regional markets. The Swedish equipment maker published the figures on Tuesday morning.

Profit, however, went the other way. Adjusted operating profit came in at SEK 6.52bn, or about $672m, excluding restructuring charges, ahead of the SEK 6.42bn analysts polled by LSEG had penciled in. Adjusted gross margin reached 48%, up two percentage points once last year’s one-off IPR settlement is stripped out.

Networks, still by far the largest segment, took the heaviest hit. Revenue there fell 8% to SEK 33.0bn, dragged down by the licensing shortfall rather than by hardware demand, which the company described as broadly stable year on year once IPR is excluded.

Cloud Software and Services rose 3% to SEK 14.7bn, helped by core network upgrades in Europe, project deliveries across the Middle East and Africa, and higher software sales in North East Asia. Enterprise fell 19% to SEK 4.5bn, of which SEK 1.0bn is simply the absence of iconectiv, divested last year, showing up as a hole in the comparison.

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“We took action to mitigate component cost inflation,” the chief executive said. “As the impact builds in the coming quarters, we will continue to pursue internal measures and pricing actions to help offset the effect.”

He also warned of pressure on the Networks adjusted gross margin in the third quarter, as higher volumes of network rollout projects come through. Translated, that is a vendor telling its customers, politely and in advance, that prices are going up.

Ekholm has been circling this problem for two quarters. In April, when Ericsson narrowly missed first-quarter forecasts and adjusted EBITA fell 20% year on year to SEK 5.6bn, he pointed at rising input costs and singled out semiconductors, driven in part by AI demand. Nothing in the second quarter suggests that has eased.

The memory squeeze that has been mangling the economics of budget smartphones runs through radio equipment too, and Ericsson buys a great deal of silicon. A telecoms vendor competing with hyperscalers for the same wafers is not a fight it can win on volume, so it fights on price instead, which is what “pricing actions” means in a press release.

Geographically, the quarter was thin. South East Asia, Oceania, and India was one of only three market areas to post positive organic sales growth, at 4%, though reported revenue there still slipped 2% to SEK 5.4bn on currency effects. India contributed 4% of global revenue, down from 8% in the first quarter, a swing that reflects the lumpiness of project timing more than any collapse in demand.

Across the first half, the region generated SEK 12.4bn against SEK 12.7bn a year earlier: reported revenue down 3%, organic sales up 8%. The gap between those two numbers is the krona doing most of the talking.

Ericsson did not break out how much of the group-level decline came from currency alone, nor how much of the licensing shortfall reflects the timing of patent deals rather than a structural fall in what its portfolio can command. Both questions tend to get answered on the next call, or not at all.

None of this changes the shape of Ericsson’s year. The company is still working through the unwinding of its North American build cycle, still investing in 6G research, and still preparing to move out of Kista for a new Stockholm campus from 2028. It is a business in a slow phase of a long cycle, doing what such businesses do: cutting where it can, holding margin where it must, and passing the rest along.

Third-quarter results are due in October. The guidance to watch is the one on Networks margin, which Ericsson has already told the market will get worse before it gets better.