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Ericsson (NASDAQ:ERIC) reported a modest organic sales decline for the second quarter of 2026 while maintaining strong margins, as management highlighted disciplined execution, ongoing cost controls and a leadership transition that will see Per Narvinger take over as chief executive in October.
President and CEO Börje Ekholm, speaking on what he said would be his final quarterly results call as Ericsson’s chief executive, said the company delivered “a solid Q2” and continued to execute against its operational and strategic priorities. Ekholm said Ericsson has been strengthened operationally in recent years, making it “much more resilient” in varying market conditions.
Adjusted gross income was SEK 25.5 billion, and adjusted gross margin was 48.4%, slightly higher than a year earlier. Ekholm said gross margin was up 2 percentage points when excluding the benefit from the one-off IPR settlement in the second quarter of 2025. Adjusted EBITDA was SEK 6.9 billion, down SEK 0.5 billion from a year earlier, while the EBITDA margin was 13.1%, in line with last year.
Leadership Transition Set for October
Ericsson announced in June that Narvinger, currently executive vice president and head of Business Area Networks, will become CEO on Oct. 1. Ekholm said Narvinger has spent almost 30 years at Ericsson and has experience across research, standardization, development, product management and sales. Narvinger has also led Networks and previously led the turnaround of Cloud Software and Services.
“Simply put, he’s an excellent choice to lead Ericsson into the next chapter,” Ekholm said, adding that the two will work closely over the next several months to ensure a smooth transition.
Narvinger said Ericsson is at “a very interesting point in time” as artificial intelligence begins to affect how the company builds products, serves customers and supports network traffic. He said Ekholm is handing over “a company in a very strong position” in terms of market position and portfolio.
Segment Performance Mixed
In Networks, reported sales decreased 8% year over year to SEK 33 billion, including a negative currency impact of SEK 1.2 billion. Organic sales declined 4%, primarily reflecting prior-year IPR one-offs, Sandström said. Networks’ adjusted gross margin was 50.4%, stable compared with the previous quarter, while adjusted EBITDA fell to SEK 5.8 billion from SEK 6.5 billion a year earlier. The adjusted EBITDA margin was 17.7%.
Cloud Software and Services reported sales rose 3% to SEK 14.7 billion, including a negative currency impact of SEK 0.4 billion. Organic sales increased 5%, with growth across all market areas. Adjusted gross margin improved to 44.1% from 43.2% a year earlier, supported by improved delivery efficiency. Adjusted EBITDA rose to SEK 1.8 billion, with a margin of 14.2%.
Enterprise reported sales fell 19%, affected by the sale of iconectiv and currency movements. On an organic basis, the segment grew 3%, driven by Global Communications Platform and Enterprise Wireless Solutions. Adjusted gross margin declined to 50.9%, reflecting the impact of the iconectiv divestment and product mix. Adjusted EBITDA was negative SEK 0.8 billion, though Sandström said it improved from the first quarter as operating expenses declined.
Component Inflation and Pricing Actions
Management repeatedly pointed to rising component costs tied to the broader AI boom and semiconductor environment. Ekholm said Ericsson is taking both near-term and longer-term actions to mitigate the pressure. Near-term measures include cost reductions, product substitutions and sales of additional products. Longer-term actions include raising prices where appropriate, adjusting new tenders, negotiating price increases with current customers and redesigning products.
Sandström said there was limited financial impact in the second quarter from component prices, helped by Ericsson’s supply chain, but the impact is expected to build gradually in coming quarters. He said input costs increased further in the second quarter, and the extent of the financial impact will depend on the timing of cost increases and mitigation efforts.
Asked whether Ericsson has automatic pass-through mechanisms in customer contracts, Ekholm said the company generally does not. He said contracts in the industry are often long term and may involve changing product shipments over time, making automatic adjustments difficult. Some smaller and shorter-term contracts may include such mechanisms, but they are not typical, he said.
Cash Flow, Outlook and Market Demand
Free cash flow before mergers and acquisitions was SEK 0.4 billion in the quarter. Sandström said cash flow was supported by earnings but affected by higher operating net assets, mainly inventories. Inventory increased by about SEK 5 billion, with most of the build tied to finished goods intended for delivery in the third quarter and a smaller portion related to higher component costs. Ericsson’s cash flow to net sales was 12% on a rolling four-quarter basis, at the upper end of its 9% to 12% target. Net cash fell sequentially by SEK 8.3 billion to SEK 59.8 billion, reflecting dividend payments and share repurchases.
For the third quarter, Ericsson expects Networks sales growth to be above the three-year average quarter-on-quarter seasonality. Cloud Software and Services sales growth is expected to be broadly similar to the three-year average seasonality. Ericsson expects Networks adjusted gross margin of 48% to 50%, down slightly from the second quarter due to mix, including a higher share of rollout projects.
Ekholm said the radio access network market remains something Ericsson plans for as “rather flattish,” even as he expressed optimism about longer-term demand tied to AI-driven network usage. He said the company is seeing emerging demand for uplink traffic and believes future AI applications in the physical world could require high-performing mobile connectivity, low latency and stronger indoor coverage.
“I think there is a real case to start to be a bit more optimistic about our industry and the RAN market,” Ekholm said, while adding that Ericsson must remain disciplined and avoid building its cost structure on speculation before demand materializes.
Ekholm also addressed the company’s Enterprise business, which an analyst noted has been consistently loss-making. He said it “cannot be consistently loss-making” and must become value accretive to the group over time. He cited progress in Wireless WAN, the need to improve private networks and ongoing work to change the trajectory of Vonage, but did not provide a specific timeline for profitability.
In closing remarks, Ekholm said Ericsson enters the future “from a position of strength” and is well-positioned for the next phase of AI adoption. He thanked customers, partners and employees, saying Ericsson’s work in expanding mobile connectivity is “an amazing achievement.”
About Ericsson (NASDAQ:ERIC)
Ericsson AB is a Swedish multinational telecommunications equipment and services company headquartered in Stockholm. Founded in 1876 by Lars Magnus Ericsson, the company designs, develops and sells infrastructure, software and services that enable mobile and fixed-line networks worldwide. Ericsson serves a global customer base that includes mobile network operators, enterprise customers and public-sector organizations across Europe, the Americas, Asia-Pacific, the Middle East and Africa.
The company’s core activities center on building and modernizing network infrastructure, with a particular focus on radio access networks (RAN), core network software, cloud-native solutions and network management systems.
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