Ericsson CEO Borje Ekholm bemoaned inflation, the current geopolitical situation and supply chain problems for causing an increase in costs for the Swedish vendor in Q2, issues which took the gloss off a rise in revenue on the back of 5G uptake.
In an earnings statement, Ekholm noted the “global supply chain situation remains challenging and inflationary pressures remain strong”, while the geopolitical situation had required “proactive investments”.
“Combined, this results in cost increases which we work hard to mitigate as far as possible.”
As a result, Ericsson’s gross margin was pushed down to 42.1 per cent from 43.4 per cent in Q2 2021. The market responded negatively, with shares trading as much as 10 per cent lower after the release of the earnings.
Ekholm noted licensing contracts were expiring and it was being forced to adjust pricing, with cost increases inevitable.
Putting a positive spin on pending hikes, Ekholm said the vendor would compensate by “bringing new innovative solutions to the market”.
IPR licensing revenue was affected as a result, with several patent and 5G licence negotiations ongoing during the period.
Despite increased costs, Q2 revenue hit SEK62.5 billion ($5.9 billion), up from SEK54.9 billion, as 5G momentum continued in Europe and North America.
Net income rose 19 per cent to SEK4.7 billion.
Ekholm indicated on an earnings call the company was bullish on 5G, highlighting its potential beyond mobile in the enterprise sector, but noting it could be 2024 before demand for new applications truly takes off.
Excluding China, Ericsson stated it held a 39 per cent market share of the global 5G market.
Its Networks division posted a 6 per cent revenue increase to SEK46 billion, figures which Fredrik Jejdling, EVP and head of the unit, believes shows it is delivering on a strategy it set out five years ago.
He told Mobile World Live Ericsson’s investment across technology and supply chain enabled it to deliver “in a fragmented environment”, giving it a competitive advantage by actually being able “to get the gear out there”.
Jejdling expects supply chain issues to begin stabilising in 2023 and highlighted India as a major target for Ericsson due to its pending 5G rollout.
Ericsson reiterated it was fully cooperating with US authorities as part of an ongoing probe into its business dealings in Iraq.