Ericsson: Second quarter profit disappoints under pressure from rising costs

Ericsson: Second quarter profit disappoints under pressure from rising costs

STOCKHOLM (Reuters) – Ericsson posted higher quarterly profit on Thursday but missed expectations as higher component and logistics costs weighed on its margin.

Rampant inflation, chip shortages and Russia’s invasion of Ukraine drove up costs for the Swedish networking equipment giant, reducing its gross margin to 42.1% in the second quarter from 43 .4%.

Ericsson shares fell 8% on the Stockholm Stock Exchange at 7:11 GMT.

Ericsson was also penalized by disputes over patent issues, including one with Apple, which led to a drop in royalties from the exploitation of patents of 0.9 billion crowns (84.83 million euros).

“The global supply chain situation remains challenging…this is driving cost increases which we are working to mitigate as much as possible,” chief executive Borje Ekholm said in a statement.

“As contracts mature, we aim to adjust prices,” he added.

Ericsson is also dealing with the fallout from an alleged corruption scandal in Iraq that led the US Department of Justice (DOJ) and the US stock market regulator (SEC) to open investigations against the Swedish group.

Ericsson said it is working with the DOJ and the SEC, but said the outcome of those efforts could not yet be assessed.

Another investigation by a US security committee has postponed the completion of Ericsson’s $6.2 billion acquisition of cloud specialist Vonage.

Despite the disruption, Ericsson’s sales in North America and Europe increased as telecom operators rushed to upgrade their networks, favoring Ericsson and its rival Nokia.

“We have a 39% market share, excluding China, in the global market, and that’s several percentage points higher over the last period,” chief financial officer Carl Mellander told Reuters.

The group’s total turnover for the period reached 62.5 billion crowns against 54.9 billion a year earlier, thus beating estimates at 61.45 billion crowns.

Its adjusted quarterly operating profit, at 7.3 billion crowns, on the other hand, missed analysts’ average expectations at 8.01 billion crowns, according to Refinitiv data.

(Reporting Supantha Mukherjee in Stockholm; French version Dagmarah Mackos, editing by Kate Entringer)

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