Ericsson falls just short of Q1 profit expectations due to a decline in North America.

      The Swedish telecom equipment manufacturer narrowly fell short of profit predictions, with adjusted EBITA decreasing by 20% year-on-year to SEK 5.6 billion. The North American market, which experienced a surge exceeding 20% in Q1 2025, sharply declined as investments pulled forward from the previous year began to unwind. CEO Ekholm attributed this decline to rising semiconductor costs, partially influenced by increased demand from AI.

      On Thursday, Ericsson reported a significant decline in profitability for Q1 2026, as the North American market that had benefitted the company a year prior reversed direction. The adjusted earnings before interest, tax, and amortization (EBITA), which Ericsson prefers as a measure of underlying profitability, decreased by 20% year-on-year to SEK 5.6 billion, yielding a margin of 11.3%, down from 12.6% in Q1 2025, slightly below analyst expectations.

      On a reported basis that includes restructuring costs due to ongoing layoffs, EBITA plummeted 73% to SEK 1.8 billion. The Networks segment, representing approximately 67% of group sales, saw an 8% revenue drop on a reported basis to SEK 32.9 billion. The Americas region declined after several quarters of high investment from US telecom operators, which had previously boosted Ericsson's results through 2025, compounded by market consolidation effects among operators.

      The comparison with Q1 2025 was particularly challenging, as the Americas had shown a 26% year-on-year growth, with North America increasing by 20%, driven by selective network investments from major US clients. However, these operators reduced their spending in the latest quarter.

      Adjusted gross margin slightly contracted to 48.1% from 48.5% in Q1 2025, as cost pressures in the Networks segment, where margin dipped due to supply chain measures, were somewhat balanced by improved performance in Cloud Software and Services, where margins increased due to enhanced delivery efficiency.

      CEO Börje Ekholm explicitly pointed out the origin of the cost pressures, stating, “We are experiencing rising input costs, particularly in semiconductors, partly due to AI demand,” in a statement accompanying the results. Like other technology firms heavily reliant on hardware, Ericsson is competing with major cloud providers for semiconductor supply, which has driven component prices upward.

      The results also reflect the ongoing repercussions of Ericsson's restructuring program. The company announced plans to lay off about 1,200 employees in Sweden by 2025 as part of its efforts to reduce costs, and elevated restructuring charges had been anticipated as a challenge for 2026 following these announcements.

      Ericsson noted that it expects the global radio access network equipment market to remain largely stable in 2026, citing data from research firm Dell’Oro Group, which forecasts growth in mission-critical communications and enterprise sectors where Ericsson is making selective investments.

      Outside North America, regional performance was more positive, with sales increases in Europe, the Middle East and Africa, Southeast Asia, Oceania, India, and Northeast Asia, which partially mitigated the decline in the Americas. The Cloud Software and Services segment, which Ekholm has been repositioning as a higher-margin, software-driven growth engine, experienced margin improvements due to better delivery efficiency.

      For the entire year of 2025, Ericsson achieved an adjusted EBITA margin of 18.1%, and net income reached SEK 28.7 billion, marking a recovery from the low point of 2024 when net income was only SEK 0.4 billion. The decline in Q1 2026 temporarily halts that margin expansion trend, although Ekholm emphasized the company’s resilience: “We are not immune, but we are resilient.”