STOCKHOLM--Ericsson warned of weaker profitability in its networks business after sales declined in the higher-margin North American market, while rising semiconductor and component prices continue to squeeze the telecommunications-equipment maker.

The Swedish company said Tuesday that its key networks business posted an organic sales decline of 4% in the second quarter, as lower sales in North America and Europe and a drop in licensing revenue offset growth in most other regions.

Sales in North America have been falling after telecom operators in the region previously made strong investments in 5G networks, having been early adopters of the technology. Networks sales in Europe also declined as modernization projects in some markets were gradually completed.

The company reported a second-quarter adjusted gross margin in the networks unit of 50.4%, in line with its guided 49% to 51% range, but said the margin is expected to land within a 48% to 50% range in the third quarter.

In addition to the drop in networks sales, Ericsson has also faced increasing cost pressures, having previously highlighted rising input costs, especially in semiconductors, caused in part by surging artificial-intelligence demand. It has said it hopes to offset these challenges through a mix of burden-sharing with customers and suppliers and through product substitution and efficiency actions.

Chief Executive Officer Borje Ekholm said Tuesday that the company took action in the second quarter to mitigate component-cost inflation.

"As the impact builds in the coming quarters, we will continue to pursue internal measures and pricing actions to help offset the effect," he said.

Ericsson also expects some pressure on the networks margin in the third quarter due to higher volumes of network rollout projects, despite guiding for sales growth at the unit to land above the three-year average seasonality of 1% growth.

The company reported second-quarter earnings before interest and taxes of 5.92 billion Swedish kronor ($609 million), down from 6.39 billion kronor a year earlier, as the lower networks sales, the impact of a previous divestment, and a one-off boost from licensing last year all made an impact. Restructuring costs also dented profitability, it said.

Sales fell 6.1% to 52.69 billion kronor, versus the 53.94 billion kronor FactSet estimate, while the group's gross margin fell to 45.8% from 47.5%.

The results mark Ekholm's last earnings report as CEO. He said last month that he would be stepping down at the end of September after more than nine years at the helm, with company veteran Per Narvinger already named as his successor.

Narvinger currently heads the company's networks business and will take over the top job on Oct. 1.

Ekholm said the company will now enter its next phase, having strengthened the portfolio to capture growth in AI-driven network capacity.

"Building on our technology leadership in mobile networks, we have expanded into attractive growth areas, positioning Ericsson to capitalize as AI increasingly moves into the physical world," he said.

Write to Dominic Chopping at dominic.chopping@wsj.com

(END) Dow Jones Newswires

July 14, 2026 02:58 ET (06:58 GMT)

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