Ericsson warns AI boom will drive up costs, hit results
Telefonaktiebolaget L M Ericsson reported a 6% decline in Q2 sales to SEK 52.7 b., with profitability pressured by rising AI-driven component costs. The company forecasts margin pressure into 2027 and announced a CEO transition effective October 1, 2026.
*this image is generated using AI for illustrative purposes only.
Telefonaktiebolaget L M Ericsson reported second-quarter sales of SEK 52.7 b., a 6% decrease from the prior year, and warned that rising component costs driven by the AI infrastructure boom will pressure profitability in the coming quarters. The telecommunications equipment maker posted earnings per share of 13 cents, in line with analyst estimates, but highlighted that inflationary pressures are expected to build gradually into 2027. CEO Börje Ekholm stated the company is "not immune" to these costs and is taking measures to mitigate the impact through pricing actions and supply chain efficiencies.
Financial Performance
Reported sales for Q2 2026 were SEK 52.7 b., down from SEK 56.1 b. in the same period last year. Organic sales decreased by 1% year-over-year, primarily due to lower IPR licensing revenues. The Networks division, Ericsson's core business, saw sales decline 8%, while the Enterprise segment dropped 19% largely due to the divestment of iconectiv in 2025. Cloud Software and Services revenue rose 3%.
Profitability metrics showed mixed results. Adjusted gross margin rose to 48.4% from 48.0% a year earlier, while adjusted EBITA margin declined to 13.1% from 13.2%. Net income for the period was SEK 4.1 b., with diluted earnings per share of SEK 1.22. Free cash flow before M&A fell to SEK 0.4 b. from SEK 2.6 b. in the prior year. The company reported a net cash position of SEK 59.8 b.
| Metric (SEK b.) | Q2 2026 | Q2 2025 | YoY Change |
|---|---|---|---|
| Net sales | 52.691 | 56.132 | -6 % |
| Gross income | 24.122 | 26.649 | -9 % |
| Reported EBITA | 6.277 | 6.763 | -7 % |
| Net income | 4.076 | 4.626 | -12 % |
| Free cash flow before M&A | 0.385 | 2.581 | -85 % |
Cost Pressures and Outlook
Ericsson executives flagged rising component costs as a key risk, noting that AI data center demand is tightening memory chip supply and pushing prices higher. CFO Lars Sandström said the company mitigated some pressure through supply chain measures, but the financial impact is expected to grow. To offset higher costs, Ericsson is raising prices, redesigning products, and renegotiating customer contracts.
The company forecasts that third-quarter sales growth for Networks will be above the 3-year average seasonality, while Cloud Software and Services sales are expected to be broadly in line with historical averages. However, Ericsson anticipates that 2026 restructuring charges will remain elevated. The company expects the Networks adjusted gross margin to face pressure in Q3 due to higher volumes of network rollout projects.
Leadership Transition
Ericsson announced a leadership transition effective October 1, 2026. Per Narvinger, currently Head of Networks, will succeed Börje Ekholm as President and CEO. Ekholm, who has served as CEO for almost 10 years, highlighted Narvinger's deep experience across research, standardization, and product management. Narvinger brings nearly 30 years of industry experience, having recently led the turnaround of Cloud Software and Services and the Networks segment.
How will the incoming CEO's background in Networks influence the strategic balance between hardware infrastructure and the growing Cloud Software and Services segment?
To what extent can Ericsson pass on rising AI-driven component costs to customers before risking market share to competitors like Huawei or Nokia?
What specific supply chain efficiencies is Ericsson targeting to counteract the projected inflationary pressures extending into 2027?
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