Ericsson (ERIC) stock dropped more than 8% on Tuesday after the Swedish telecom equipment maker reported Q2 net sales that missed analyst estimates, while also warning of margin pressure in the coming quarter.
Telefonaktiebolaget LM Ericsson (publ), ERIC
Net sales fell 6% to SEK 52.69 billion, below the SEK 53.71 billion analyst consensus, compared to SEK 56.13 billion in the same period last year.
The stock’s sharp drop came despite earnings that largely beat expectations. Adjusted gross margin came in at 48.4%, above the 47.9% consensus and the highest analyst forecast of 48.2%.
ERICSSON $ERIC Q2’26 EARNINGS HIGHLIGHTS
🔹 Revenue: SEK52.7B; -6% reported, -1% organic 🔴
🔹 EPS: SEK1.22 (Est. SEK1.2) 🟢; -11% YoY
🔹 Adj. EBITA: SEK6.88B (Est. SEK6.8B) 🟢; -7% YoY
🔸 Q3 Networks profitability to face pressure from higher component costs & rollout volumes… pic.twitter.com/ZEhWanjZ3l— Wall St Engine (@wallstengine) July 14, 2026
Adjusted EBITA reached SEK 6.9 billion, topping the SEK 6.71 billion consensus, with an adjusted EBITA margin of 13.1% versus a consensus of 12.5%.
The sales miss was largely tied to a drop in patent-licensing revenue, which fell to SEK 3.4 billion from SEK 4.9 billion. The prior year period had included a one-off benefit from a partial intellectual property rights settlement that did not repeat.
Organic sales declined 1% year-over-year, though organic growth was positive in three of Ericsson’s four market areas.
Jefferies, which rates the stock “hold” with a price target of 98 crowns, noted the sales shortfall was concentrated in the Networks division, largely due to delayed deliveries in India.
The brokerage added that Ericsson is guiding for a stronger-than-seasonal third quarter as those India deliveries land, but the Networks gross margin guidance is what spooked investors.
Ericsson guided its Networks gross margin to a midpoint of 49% for Q3, down from 50.4% in Q2. The company cited higher volumes of network rollout projects as the reason.
Jefferies also flagged that rising component prices could put further pressure on margins in Q4, depending on how effective the company’s mitigation efforts are, including pricing increases.
Free cash flow before M&A dropped 85% to SEK 0.4 billion from SEK 2.6 billion a year earlier, which Jefferies called a weak spot in an otherwise solid quarter.
Net income fell 12% to SEK 4.1 billion from SEK 4.6 billion, with diluted earnings per share dropping to SEK 1.22 from SEK 1.37.
CEO Börje Ekholm will retire effective September 30. Per Narvinger will take over as President and CEO, while Ekholm stays on as an adviser until June 15, 2027.
Ekholm said the Q2 results “underscore the strength of our portfolio and disciplined execution,” adding that the company has taken steps to mitigate component cost inflation.
Ericsson returned SEK 8.2 billion to shareholders during Q2, including SEK 3.2 billion in share buybacks.
The company also demonstrated AI-enabled drone sensing and tracking using existing cell towers at a Texas stadium during a major global sporting event.
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