Ericsson (NASDAQ:ERIC) shares fell Friday after the telecommunications equipment maker reported weaker-than-expected first-quarter earnings and a decline in revenue.
The company posted earnings per share of 3 cents, missing analysts’ consensus estimate of 13 cents. Quarterly sales came in at 49.3 billion Swedish kronor ($5.4 billion), down 10% from a year earlier and below expectations of $5.7 billion.
Organic sales, which exclude the effects of acquisitions, divestments, and currency movements, rose 6% in the period.
Sales in the Networks division, Ericsson’s core business, declined 8%. The Enterprise segment dropped 30%, largely due to the divestment of iconectiv in 2025. Cloud Software and Services revenue fell 9%.
On an organic basis, Networks sales rose 7%, supported by growth in three of four market areas. Cloud Software and Services organic sales increased 4%, while Enterprise organic sales also rose 4%, driven by the Global Communications Platform.
Profitability weakened during the quarter. Adjusted gross margin edged down to 48.1% from 48.5% a year earlier. Adjusted EBIT margin fell to 10.6% from 11.3%, while adjusted EBITA margin declined to 11.3% from 12.6%.
Free cash flow before mergers and acquisitions rose to 5.92 billion kronor from 2.70 billion kronor a year earlier. Ericsson reported a net cash position of 68.1 billion kronor for the quarter.
Separately, the company’s board approved a share buyback program of up to 15 billion kronor.
Earnings Call Highlights
CEO Börje Ekholm said the company delivered a solid start to the year, with strong operational execution driving 6% organic sales growth across all segments despite a significant currency headwind that reduced reported sales.
He credited the company’s multi-year investments in building a diversified and resilient supply chain for enabling consistent delivery despite geopolitical and macroeconomic challenges, while also reducing reliance on geographic mix.
Ekholm acknowledged rising input costs, particularly in semiconductors, driven partly by AI demand, and said Ericsson is addressing these pressures by collaborating with customers and suppliers, as well as improving efficiency and product substitution.
He added that while the RAN market is expected to remain flat, Ericsson’s focused strategy, strong portfolio, and expanding presence in mission-critical and Enterprise segments position it to outpace the broader mobile networks market and support long-term growth.
Ekholm and CFO Lars Sandström both underscored that global uncertainty, including geopolitical risks and semiconductor constraints, continues to shape the outlook.
They expect cost pressures, particularly from components such as memory, to act as a headwind, though management is working to offset them through pricing, supplier collaboration, and product innovation.
Ekholm said growth opportunities are emerging beyond traditional telecom markets, particularly in enterprise connectivity, private networks, and mission-critical applications such as defense and 5G-based sensing. He added that these newer areas are beginning to scale and could drive future expansion.
Sandström noted that cost-efficiency initiatives and restructuring efforts will increasingly benefit results in the second half of the year and into 2027, while Ekholm added that maintaining stable margins and disciplined execution remains a priority as the company navigates a flat core market and invests in long-term growth areas.
Outlook
The company forecasts that second-quarter sales growth for Networks will be broadly in line with the 3-year average seasonality.
Similarly, it expects quarterly Cloud Software and Services sales to be above the 3-year average seasonality.
Based on its current assessment of announced tariffs, the company anticipates a quarterly adjusted gross margin of 49% to 51% for Networks.
However, the company expects 2026 restructuring charges to remain elevated.
ERIC Price Action: Ericsson shares were down 0.82% at $12.06 during premarket trading on Friday, according to Benzinga Pro data.
Photo via Shutterstock
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