Ericsson shares fall as inflation and supply problems weigh on margins

Ericsson shares fell as much as 10 per cent on Thursday after the telecoms equipment maker missed second-quarter expectations.

The Swedish group reported a 1.3 percentage point fall in second quarter gross margin to 42.1 per cent, which it blamed on high inflation and a shortage of chips caused by supply chain problems.

“The global supply chain situation remains challenging and inflationary pressures are strong,” 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 has required “proactive investments” to reduce risks to the supply chain, noting that the group would adjust its prices when contracts expired.

“The best way to compensate for cost increases is the continued investment in technology to increase the cadence of bringing new innovative solutions to the market,” Ekholm added.

Net sales for the quarter of SKr62.5bn ($5.9bn) beat analysts’ expectations of SKr61.5bn, as the rollout of 5G networks and market share gains pushed up organic sales 5 per cent in the quarter.

However, Ericsson’s figures were dented by expiring licensing agreements, as well as a patent dispute with Apple.

The group’s Stockholm-listed shares recovered slightly by mid-morning to trade 8.5 per cent lower at SKr72.

Ericsson, which is being investigated by US regulators over allegations that it made payments to terror group Isis in Iraq, reiterated that it was “fully committed to co-operating with the US authorities”.