Ericsson shares fell as much as 10 per cent on Thursday after the telecoms equipment maker missed second-quarter margin expectations.
The Swedish group reported a 1.3 percentage point drop in second-quarter gross margin to 42.1 per cent, on the back of higher inflation, global supply chain problems and a drop in revenues from intellectual property licences.
“The global supply chain situation remains challenging and inflationary pressures are significant,” said Börje Ekholm, Ericsson president and chief executive. “Combined, this results in cost increases which we work hard to mitigate.”
He said the geopolitical situation required “proactive investments” to cut risks to its supply chain, including more manufacturing flexibility and holding larger inventories.
“We did see increased costs for components and logistics and the proactive investments we are making in supply chain resilience and networks is clearly the right thing to do,” said Ericsson chief financial officer Carl Mellander.
Group organic sales rose 5 per cent year on year, driven primarily by 5G network rollouts and market share gains in North America and Europe. Net revenues surged 14 per cent year on year to SKr62.5bn ($5.9bn), beating analysts’ expectations of SKr61.5bn.
Quarterly sales in North America rose 12 per cent year on year, adjusted for foreign exchange fluctuations, driven by high demand for 5G in the US.
“With 5G, the world is experiencing the largest innovation platform to date, where anything that can go wireless, will go wireless. Ericsson is at the epicentre of this powerful trend,” Ekholm said.
The group’s Stockholm-listed shares recovered slightly by midday to trade 8 per cent lower at SKr72.90.
Ericsson shares have lost more than a third of their value since February, when it conceded it could have made payments to terrorist group Isis in Iraq.
A 2019 internal investigation found breaches of compliance rules in Iraq, including payments for transport routes in areas that were under the control of terrorist groups, including Isis.
The company is being investigated by US regulators over the allegations, and on Thursday said it “cannot assess how these matters will be resolved”, but that it was “fully committed to co-operating with the US authorities”.
