Ericsson Q1 Earnings Call Highlights

Key Points

• Reported sales fell 10% due to a stronger Swedish krona, but on an organic basis Ericsson delivered 6% year‑over‑year growth; management said currency reduced net sales by SEK 7.8 billion and adjusted gross income by SEK 3.8 billion.
• Segment performance was mixed: Networks grew organically ~7% with gross margins stable around 50%, Cloud Software saw margin improvement to 43.2% and aims for stable double‑digit margins over time, while the Enterprise business posted an adjusted EBITDA loss of SEK 1.4 billion with an improvement plan underway.
• Financial position and outlook: cash flow before M&A was SEK 5.9 billion and net cash rose to SEK 68.1 billion; the AGM approved an increased dividend and Ericsson’s first share buyback targeting SEK 15 billion, and the company expects Q2 seasonal patterns with Networks margins guided to 49–51% amid elevated restructuring charges and an AI‑driven demand outlook.

Ericsson NASDAQ: ERIC reported what CEO Börje Ekholm called a “solid start” to 2026, highlighting broad-based organic growth and stable margins despite what management described as an unusually large foreign-exchange headwind from a stronger Swedish krona.

Ekholm said currency movements “materially impacted every line” of the company’s financial statements, contributing to a 10% decline in reported sales. On an organic basis, however, Ericsson delivered 6% year-over-year growth in the quarter with contributions from all segments. CFO Lars Sandström quantified the currency impact at SEK 7.8 billion on net sales and SEK 3.8 billion on adjusted gross income.

Q1 results: Currency headwinds offset by organic growth and cost actions

Net sales totaled SEK 49.3 billion in the first quarter. Sandström said organic sales grew 6% year-on-year, with “broad-based” growth and double-digit organic growth in three market areas driven by continued 5G rollouts and increased uptake of 5G Core.

Adjusted gross margin was 48.1%, which Sandström said was in line with last year excluding iconectiv. Ericsson posted adjusted EBITDA (as described on the call) of SEK 5.6 billion, with an 11.3% margin. Ekholm noted that the stronger krona reduced EBITA by SEK 2.2 billion, and Sandström added that results also included SEK 0.5 billion of additional share-based compensation costs due to a higher share price during the quarter.

Cash flow before M&A was SEK 5.9 billion, which management characterized as healthy for a seasonally weaker quarter. Net cash rose sequentially by SEK 6.9 billion to SEK 68.1 billion.

Ericsson also pointed to shareholder returns approved at its AGM. Ekholm said the meeting approved an increased dividend and the company’s first share buyback program, with execution beginning “next week” and a target of SEK 15 billion in repurchases.

Segment performance: Networks margins steady; Cloud Software improves; Enterprise loss addressed

In the Networks segment, sales fell 8% year-over-year to SEK 32.9 billion, including a SEK 5.2 billion negative currency impact. On an organic basis, Networks sales increased 7%. Sandström said growth was seen in three of four market areas, citing strong performance in India and Japan, while North America declined amid what he described as customer spending reallocation and tougher comparisons following operator consolidation and last year’s tariff-related investment timing.

Networks adjusted gross margin slipped slightly to 50.4%, which Sandström said reflected actions to enhance supply-chain resilience. Adjusted EBITDA for Networks was SEK 6.4 billion, with a 13.3% margin, supported by lower operating expenses and efficiency improvements despite a SEK 2 billion negative currency impact. Sandström also emphasized that rolling four-quarter Networks gross margin has stabilized around 50%.

Cloud Software and Services reported sales down 9% to SEK 11.8 billion, with a SEK 1.6 billion negative currency impact. Organic sales grew 4%, “primarily in Core,” Sandström said. The segment’s adjusted gross margin improved to 43.2% from 39.9% a year earlier, supported by delivery efficiency and a favorable product mix. Adjusted EBITDA rose to SEK 0.6 billion, for a 5.3% margin. In Q&A, Sandström said the company’s first objective has been to reach “a stable double-digit margin” in Cloud Software and Services over time, adding that Ericsson feels it has reached “a stable level now in a good way in the company,” while reiterating it guides quarter by quarter.

On the enterprise side, Sandström said reported sales decreased 30% due to the iconectiv sale and currency, while organic growth was 4%, marking a second consecutive quarter of organic growth. Adjusted EBITDA was SEK -1.4 billion, reflecting the iconectiv divestment and non-recurring costs of SEK 0.3 billion in the quarter. Ekholm called the loss “clearly unacceptable,” but said it included one-time costs and that an improvement plan is in place. He said management expects shrinking losses through the rest of the year as growth, operational discipline, and the fading of one-time items take effect.

Regional trends: North America softness; strength in India, Japan, and Latin America

Americas declined 2% year-on-year, according to Sandström, as strong growth in Latin America more than offset a mid-single-digit decline in North America. Ekholm acknowledged North America’s outsized attention as a “front runner market,” but said Ericsson has worked to reduce dependence on any single geographic mix, pointing to the company’s ability to maintain a 48.1% group gross margin and 50.4% in Networks despite lower North American sales.

Asked about North America for 2026, Ekholm said the first-quarter development is “probably similar to what we should expect for the year,” based on customer guidance. He also noted Ericsson may have been hit harder than the broader market early in the year due to U.S. operator consolidation, but said he does not see a change in market conditions and expects a “bit better mix” for Ericsson versus the market going forward.

On India and Japan, Ekholm said Ericsson has strengthened its market position and that he is “very comfortable” expecting healthy growth as it continues to deliver in those markets.

On competition in regions such as Latin America and parts of Africa and Asia, Ekholm said the company’s key competitor is “one of the Chinese,” and Ericsson believes it can compete head-on based on product performance, quality benchmarking, and energy performance in the field. He said Africa is “maybe the hardest market to compete” in, while adding that Ericsson remains competitive and is winning market share in Southeast Asia where it competes with Chinese rivals.

Costs and supply chain: Semiconductor inflation, logistics disruption, and OpEx restructuring

Management repeatedly addressed rising component costs tied to the global semiconductor environment. Ekholm said the “AI boom is increasing input costs,” and Sandström said global uncertainty remains elevated, including the semiconductor situation. In response to a question on memory and cost inflation, Ekholm said there is “a headwind coming,” though memory is a smaller part of Ericsson’s total cost base. He said the company is working with suppliers and customers to share the burden and is exploring product substitution, adding that any impact is more likely to appear in the second half of the year.

Ekholm also described levers beyond vendor and customer negotiations, including technology-driven product substitution to reduce cost while maintaining performance, and additional opportunities to reduce service delivery costs. He said he expects next-generation ASICs “within a not too distant future” to help on substitution.

On operating expenses, Sandström said OpEx was lower year-over-year largely due to currency and the iconectiv divestment, with underlying cost reduction also coming through. He said inflation pressures are largely tied to salaries, and Ericsson’s assumption of a flat RAN market requires continuous efficiency work. Both Sandström and Ekholm said restructuring actions announced in the quarter, concentrated in Sweden and elsewhere in Europe but also in other regions, are expected to show more clearly in the second half and into next year, noting that cost benefits can take longer than expected to appear in reported numbers.

Supply chain and logistics were also discussed. Ekholm said Ericsson has seen some impact from transportation and rerouting costs related to conflict in the Middle East, but described the effect as limited relative to the overall cost base. He said a “well-distributed” and flexible supply chain has helped the company continue delivering to customers amid disruptions, while reiterating that Ericsson is not immune to geopolitical disturbances.

Outlook and strategy: Q2 seasonality, AI-driven connectivity, and new markets

For the second quarter, Sandström said the outlook assumes no tariff changes and the exchange rates specified in the report. For Networks, Ericsson expects sales growth broadly in line with the three-year average quarter-on-quarter seasonality, while Cloud Software and Services is expected to be above the three-year average seasonality. Networks adjusted gross margin is expected to be in the 49% to 51% range.

Sandström also said restructuring charges for 2026 are expected to be elevated, with “a fairly large part already seen in Q1.”

Strategically, Ekholm reiterated Ericsson’s planning assumption that the RAN market will be flat over the longer term, while arguing that “high-performance mobile connectivity will become increasingly important” as AI moves from data centers into devices and applications that require ultra-low latency and higher uplink. He said Ericsson does not expect direct exposure to data center expansion, but rather demand uplift from AI-driven traffic and use cases that change network requirements.

Ekholm highlighted efforts to expand beyond traditional communications service provider markets into enterprise and mission-critical networks, including network APIs (which he referred to as “network-powered solutions”), private networks, wireless WAN, and mobile money. He also pointed to mission-critical momentum in defense-related solutions, citing an Italian Navy deployment during the quarter, and discussed 5G-based sensing use cases such as detecting unconnected drones. On timing for defense-related opportunities, Ekholm characterized the opportunity as nearer term, suggesting initial materialization over roughly the next 9 to 18 months and scaling over two to three years, while noting the difficulty of assigning precise revenue timing.

Looking longer term, Ekholm said Ericsson aims to drive mid-single-digit growth and achieve long-term margin targets of 15% to 18% as it broadens the mobile platform to new sectors and use cases.

About Ericsson NASDAQ: ERIC

Ericsson AB is a Swedish multinational telecommunications equipment and services company headquartered in Stockholm. Founded in 1876 by Lars Magnus Ericsson, the company designs, develops and sells infrastructure, software and services that enable mobile and fixed-line networks worldwide. Ericsson serves a global customer base that includes mobile network operators, enterprise customers and public-sector organizations across Europe, the Americas, Asia-Pacific, the Middle East and Africa.

The company's core activities center on building and modernizing network infrastructure, with a particular focus on radio access networks (RAN), core network software, cloud-native solutions and network management systems.

This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to contact@marketbeat.com.