Ericsson shares fall as inflation and supply issues hurt margins

Ericsson shares fell 10% on Thursday after the telecommunications equipment maker fell short of second-quarter expectations.

The Swedish group reported a 1.3 percentage point decline in second-quarter gross margin to 42.1%, driven by high inflation and chip shortages fueled by supply chain issues.

“The situation in the global supply chain remains challenging and inflationary pressures are strong,” Børje Ekholm said. Ericsson president and executive director. “In the aggregate, this leads to an increase in costs, and we are working hard to mitigate it.”

He said the geopolitical situation calls for “proactive investment” to mitigate risks in the supply chain, noting that the group will adjust its prices when contracts expire.

“The best way to offset rising costs is to continually invest in technology to accelerate new innovative solutions to market,” Ekholm added.

Quarterly net sales of SEK 62.5 billion ($5.9 billion) beat analysts’ expectations of SEK 61.5 billion as 5G rollouts and market share growth led to 5% quarterly organic sales growth .

However, Ericsson’s performance was affected by the expiration of licensing agreements, as well as a patent dispute with Apple.

Stocks listed in Stockholm rebounded slightly by mid-morning, trading 8.5% lower at 72 SEK.

Ericsson, which is being investigated by US regulators for allegations that payments to ISIS terrorist group in Iraq confirmed that he is “fully committed to cooperating with the US authorities.”