Ericsson Sees Higher Quarterly Costs on Network Sales Growth

Ericsson AB warned that margins for its main networks business will come under pressure this quarter as the Swedish telecommunications maker grapples with higher component costs.

Higher sales at the unit, which make up most of Ericsson’s revenue, will also weigh on profitability, outgoing Chief Executive Officer Börje Ekholm said in a statement on Tuesday.

Component costs were “mitigated through measures across the supply chain,” said Chief Financial Officer Lars Sandström in an interview.

Demand for memory chips thanks to the boom in artificial intelligence data center construction has constrained supply and driven up costs, forcing companies to raise prices for their own goods and services.

“The telecommunications sector faces acute shortages of memory chips and copper, affecting network deployment, decommissioning costs, and smartphone pricing,” Omdia analyst Ronan de Renesse wrote earlier this year.

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Adjusted earnings before interest, taxes and amortization were 6.88 billion Swedish kronor ($709 million) for the second quarter, down about 7% year over year, Ericsson said in the statement. That compares to an average analyst estimate of 6.82 billion kronor, according to data compiled by Bloomberg.

Ericsson and other telecommunications equipment makers have wrestled for years with weak demand from phone companies as anticipated spending on 5G network upgrades failed to materialize. In response, the company has focused on slashing costs, eliminating about 5,000 jobs worldwide in 2025 and plans to reduce expenses at a similar pace this year.

Tuesday’s earnings report will be the last for Ekholm, who will retire at the end of September and be replaced by Per Narvinger. Ekholm will still run the company through third quarter, but Narvinger is set to present those figures after taking over.

While Finnish rival Nokia Oyj has reorganized its business to prioritize networking equipment for artificial intelligence data centers, Ericsson remains a pure-play supplier for mobile network gear to telecom operators.

Under Ekholm, Ericsson also gained share among US operators, such as AT&T Inc. and Verizon Communications Inc., making the market even more critical to the Swedish company. CFO Sandström said the US business slightly declined during the second quarter.

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