Investing.com — Sweden’s shares slipped on Friday after the telecom equipment maker reported a sharp drop in first-quarter earnings, hit by restructuring charges and currency headwinds, while analysts flagged a weak near-term outlook.
Ericsson reported a 79% year-on-year collapse in net income to SEK 887 million for the quarter ended March 31, hit by restructuring charges tied to headcount reductions in Sweden, which rose to SEK 3.8 billion from SEK 281 million a year earlier. Diluted earnings per share fell to SEK 0.27 from SEK 1.24.
Reported net sales declined 10% to SEK 49.3 billion, reflecting a significant SEK 7.8 billion currency headwind. On an organic basis, however, sales grew 6%, driven by a 7% increase in Networks and 4% growth in Cloud Software and Services.
Adjusted EBITA fell 20% to SEK 5.6 billion, with margin compressing to 11.3% from 12.6%, while reported EBITA dropped 73% to SEK 1.8 billion. Gross margin narrowed slightly to 48.1%.
The Networks division, which accounts for roughly two-thirds of group revenue, saw an 8% reported decline, weighed down by weaker performance in the Americas following elevated prior-year spending and operator consolidation.
Growth in Europe, Asia and other regions provided only partial offset. The Enterprise segment remained a drag, with sales falling 30% following the divestment of iconectiv.
Despite weak earnings, cash generation improved, with free cash flow more than doubling to SEK 5.9 billion, supported by intellectual property payments. Net cash rose to SEK 68.1 billion. The company also announced a share buyback program of up to SEK 15 billion.
Management reiterated that the global radio access network (RAN) market is expected to remain broadly flat in 2026.
Analysts remain cautious on the outlook. BofA Securities reiterated its “underperform” rating, arguing Ericsson is a “good house in a bad neighborhood,” citing structurally weak telecom equipment demand, limited earnings growth and ongoing competitive pressure.
The brokerage expects revenues to remain broadly flat and operating profit to stagnate through 2028 as R&D spending stays elevated to defend market share.
Morgan Stanley also struck a cautious tone, noting the first-quarter EBITA miss and weaker-than-expected Enterprise performance.
The broker highlighted that second-quarter guidance for Networks is slightly below consensus.
More broadly, analysts point to a lack of meaningful growth drivers in the medium term. The global RAN market is seen as flat through the end of the decade, with 5G investment cycles maturing and 6G unlikely to provide a boost before 2030.
While artificial intelligence-related network opportunities are emerging, they are not expected to translate into material revenues in the near term.
Potential upside remains tied to geopolitical developments, particularly any acceleration in the replacement of Chinese telecom equipment in Europe, though analysts caution that timing and scale remain uncertain.