Thunder! Big straight dive! European giants suddenly collapsed
We have to guard against thunder during the earnings season. After the release of its financial report, the stock price of European telecommunications equipment giant Ericsson plunged sharply. European stocks plunged more than 10% in early trading on Tuesday. The financial report shows that the company's net sales in the second quarter of 2026 fell by 6% year-on-year, which was lower than market expectations; net profit fell by 12% year-on-year. Ericsson executives said that the rising cost of parts and components has become an important obstacle to the company's business, and it is expected that the company's adjusted gross profit margin of the network business will face certain pressure in the third quarter.
We have to guard against thunder during the earnings season. After the release of its financial report, the stock price of European telecommunications equipment giant Ericsson plunged sharply. European stocks plunged more than 10% in early trading on Tuesday. The financial report shows that the company's net sales in the second quarter of 2026 fell by 6% year-on-year, which was lower than market expectations; net profit fell by 12% year-on-year. Ericsson executives said that the rising cost of parts and components has become an important obstacle to the company's business, and it is expected that the company's adjusted gross profit margin of the network business will face certain pressure in the third quarter. Several analysts have warned that against the backdrop of the global wave of AI (artificial intelligence) infrastructure, the costs of semiconductors and other components are rising across the board, which may make Ericsson face greater challenges. Ericsson share price plummets On July 14, Beijing time, after the European stock market opened, Ericsson's stock price plummeted, once plummeting more than 10%. As of 16:30, the decline was still 8.16%. In pre-market trading on U.S. stocks, Ericsson’s U.S. stock price also fell by more than 8%. On the news, Ericsson's latest financial report shows that the company's net sales in the second quarter of 2026 were 52.69 billion Swedish kronor, a year-on-year decrease of 6%, lower than the market estimate of 53.86 billion Swedish kronor; adjusted EBI T was 6.9 billion Swedish kronor, higher than the market estimate of 6.71 billion Swedish kronor; net profit fell 12% year-on-year to 4.1 billion kronor; adjusted earnings per share was US$0.1258, far lower than analysts' expectations of US$1.19. It is worth noting that as of the end of the second quarter, the company's free cash flow plummeted to SEK 400 million from SEK 2.6 billion in the same period last year, a drop of as much as 85%. The network business is Ericsson's core business and was hit the hardest this quarter, contributing revenue of 33 billion Swedish kronor, a year-on-year decrease of 8%, partly due to a decline in intellectual property licensing revenue. Ericsson said it expects network sales growth in the third quarter to be higher than the three-year average seasonal level, and its adjusted gross profit margin is expected to be between 48% and 50%, compared with the market's previous expectation of 49.5%. The global wave of AI infrastructure has caused memory prices to continue to soar, which is putting tremendous pressure on Ericsson's operations. Ericsson CFO Lars Sandström said: "The full build-out of artificial intelligence has put considerable pressure on the entire industry, including our company. In addition to memory prices, this also affects the custom chips companies use to build telecom infrastructure." Ericsson President and CEO Borje Ekholm said that the rising cost of components has become an important headwind. The company has taken measures to alleviate the rising cost of components this quarter and will continue to implement internal efficiency improvement measures and price adjustments in the next few quarters. He also added that due to the increase in the number of network deployment projects, the company expects that the adjusted gross profit margin of the network business will face certain pressure in the third quarter. "We are taking actions across our business units in the near term, including commercial measures such as product substitutions, as well as supply chain actions and targeted cost control initiatives," Ekholm said on the call. Ericsson previously warned that profit margins in the company's main network business would come under pressure in the current quarter due to rising component costs. Looking forward to the future, Ericsson said that it has continuously strengthened its product portfolio in recent years, enabling it to fully seize the next stage of development opportunities driven by AI. The company believes that with its leadership in mobile networks and its expansion into emerging growth areas, Ericsson will benefit as AI is increasingly applied to real-world infrastructure and connected environments. The earnings report heightened already fragile market sentiment. On the eve of the earnings release, analysts' consensus rating for Ericsson was close to "hold/sell." Among them, an analyst at Seeking Alpha recently downgraded the stock rating to "hold" on the grounds that the company's revenue growth is limited and the proportion of hardware revenue is too high as the telecom spending cycle gradually slows down. Omdia analyst Ronan de Renesse warned: "The telecom industry faces severe shortages of memory chips and copper, affecting network deployment, decommissioning costs and smartphone pricing."
JPMorgan Chase also clearly warned: "The cost of semiconductors and other components is rising across the board, which may make Ericsson face greater challenges." The company said it is managing cost pressures through cost sharing and supply chain initiatives, but it is difficult to increase prices to customers in a down market environment, and improvements in operational efficiency may not be enough to completely offset pricing pressures. Looking back, in the first quarter of this year, Ericsson's adjusted operating profit was 5.2 billion Swedish kronor (about 566 million U.S. dollars), lower than analysts' expectations of 5.4 billion Swedish kronor. The company attributed the lower-than-expected profit to rising chip prices driven by AI demand. JPMorgan Chase believes that Ericsson's share price "is the best time to buy when it is unpopular with the market", which is not the case currently. Ericsson's valuation range over the past ten years has ranged from 12 times to 19 times forward price-to-earnings ratios, with a median of 15 times. JPMorgan Chase used 14 times the expected earnings per share in 2027 as the valuation benchmark and gave a target price of 102 Swedish krona, which is slightly conservative. Generally speaking, before the industry reaches a complete demand inflection point, analysts recommend that investors exercise restraint on Ericsson stocks and wait patiently for a more cost-effective bottom-building period caused by macro disturbances. (
JPMorgan Chase also clearly warned: "The cost of semiconductors and other components is rising across the board, which may make Ericsson face greater challenges." The company said it is managing cost pressures through cost sharing and supply chain initiatives, but it is difficult to increase prices to customers in a down market environment, and improvements in operational efficiency may not be enough to completely offset pricing pressures. Looking back, in the first quarter of this year, Ericsson's adjusted operating profit was 5.2 billion Swedish kronor (about 566 million U.S. dollars), lower than analysts' expectations of 5.4 billion Swedish kronor. The company attributed the lower-than-expected profit to rising chip prices driven by AI demand. JPMorgan Chase believes that Ericsson's share price "is the best time to buy when it is unpopular with the market", which is not the case currently. Ericsson's valuation range over the past ten years has ranged from 12 times to 19 times forward price-to-earnings ratios, with a median of 15 times. JPMorgan Chase used 14 times the expected earnings per share in 2027 as the valuation benchmark and gave a target price of 102 Swedish krona, which is slightly conservative. Generally speaking, before the industry reaches a complete demand inflection point, analysts recommend that investors exercise restraint on Ericsson stocks and wait patiently for a more cost-effective bottom-building period caused by macro disturbances. (