North American 5G spending slowdown pressures telecom equipment maker
Ericsson on Tuesday reported a 4% organic sales decline in its key networks unit and forecast lower profitability in the third quarter, citing rising semiconductor and component costs that are eating into margins.
The Swedish telecommunications-equipment company said its networks business posted an adjusted gross margin of 50.4% in the April-to-June period, within its guided range of 49% to 51%. But the company expects the metric to fall to between 48% and 50% in the current quarter, a drop it attributed in part to higher input costs.
Sales in North America — historically a high-margin region for Ericsson — have been falling after telecom operators completed an initial wave of 5G buildout and slowed subsequent investment. That decline, combined with lower sales in Europe and a drop in licensing revenue, weighed on the networks unit’s top line, though growth in most other regions partially offset the shortfall.
Chief Executive Borje Ekholm said the company took steps in the second quarter to mitigate component-cost inflation.
“As the impact builds in the coming quarters, we will continue to pursue internal measures and pricing actions to help offset the effect,” Ekholm said.
The company also flagged pressure from higher volumes of network rollout projects in the third quarter.