Ericsson barely falls short of Q1 profit expectations as North America sees a decline.

      The Swedish telecom equipment manufacturer slightly missed profit expectations, with adjusted EBITA decreasing by 20% compared to the previous year, amounting to SEK 5.6 billion. North America, which had driven a more than 20% increase in Q1 2025, experienced a sharp decline as the previous year's accelerated investments came to an end. CEO Ekholm attributed this to rising semiconductor input costs, partly influenced by demand from AI.

      On Thursday, Ericsson reported a significant drop in profitability for the first quarter of 2026, as the North American market that boosted the company's results the previous year began to decline. Adjusted earnings before interest, tax, and amortisation (EBITA), the metric preferred by Ericsson for assessing underlying profitability, fell by 20% year-on-year to SEK 5.6 billion, with a margin of 11.3% compared to 12.6% in Q1 2025, just missing analyst forecasts.

      On a reported basis, factoring in restructuring costs associated with ongoing workforce reductions, EBITA plummeted 73% to SEK 1.8 billion. The Networks segment, which constitutes approximately 67% of total group sales, witnessed an 8% decline in revenue on a reported basis, totaling SEK 32.9 billion. Following several quarters of heightened investment by U.S. telecom operators that had previously bolstered Ericsson's performance throughout 2025, the Americas region decreased, compounded by the effects of operator consolidation in the market.

      The comparison with Q1 2025 was particularly challenging: a year ago, the Americas saw a 26% year-on-year increase, with North America alone growing by 20%, spurred by selective network investments from major U.S. clients. Those same operators curtailed spending in the latest quarter.

      The adjusted gross margin narrowed slightly to 48.1%, down from 48.5% in Q1 2025, as cost pressures in the Networks segment, where margins declined due to supply chain measures, were somewhat mitigated by improved performance in Cloud Software and Services, which saw a rise in margins due to enhanced delivery efficiencies.

      CEO Börje Ekholm was clear about the cause of the cost pressure, stating, "We are facing increasing input costs, especially in semiconductors, caused in part by AI demand," in the accompanying statement of the results. Ericsson, like many other technology companies reliant on hardware, is vying for semiconductor supplies with hyperscalers developing AI infrastructure, which is driving up component prices.

      These results also highlight the ongoing effects of Ericsson's restructuring program. The company announced plans to reduce its workforce by approximately 1,200 jobs in Sweden in 2025 as a part of its efforts to cut costs, and higher restructuring charges were already indicated as a potential challenge for 2026 following these announcements.

      The company forecasts that the global radio access network equipment market will remain relatively stable in 2026, according to information from research firm Dell’Oro Group, expecting growth in mission-critical communications and enterprise sectors where Ericsson has been strategically investing.

      Outside North America, the regional performance was more positive. Sales increased in Europe, the Middle East, Africa, Southeast Asia, Oceania, India, and Northeast Asia, partially offsetting the decline in the Americas. Cloud Software and Services, the segment Ekholm is repositioning as a higher-margin, software-driven growth engine, saw improvements in margins due to better delivery efficiency.

      For the full year of 2025, Ericsson's adjusted EBITA margin stood at 18.1%, with net income reaching SEK 28.7 billion, reflecting a multi-year recovery from the low point of 2024 when the company's net income was just SEK 0.4 billion. The dip in Q1 2026 temporarily halts this margin expansion, although Ekholm sought to emphasize the company's resilience: “We are not immune, but we are resilient.”