• Ericsson’s first-quarter financials signal trouble for the telecom vendor community
• Revenues are stable but costs have grown due to rising chip prices
• And those cost pressures are going to get worse

Ericsson’s first-quarter 2026 financial results will not be remembered for the numbers themselves but for the warning sign they have sent to the broader communications networking sector about the latest component shortage and the pressure it is putting on margins, with Ericsson, referencing the global supply constraint on memory chips that is also impacting the smartphone sector, calling out “increasing input costs, especially in semiconductors, caused in part by AI demand”.

The vendor’s numbers are pretty much as expected and look worse than they are because of foreign exchange rate variations that skew the figures as they are converted into Swedish krona: For example, Ericsson’s first-quarter revenues of 49.33bn krona ($5.4bn) are down by 10% year on year on a reported basis, but on an organic basis (once exchange rate and other variables are taken into account) its sales are up by 6% on a like-for-like basis. 

But however you look at the numbers, its margins are down and its costs are up, and that situation is only going to get worse as the year goes on, even though the vendor is trying to alleviate concerns as much as possible. 

CEO Borje Ekholm stated during the company’s earnings call that “actions we’ve taken over the last several years to strengthen the company operationally” include “how we diversified our supply chain to mitigate as much of the geopolitical disturbances as possible. This continues to be a clear competitive advantage enabling us to meet customer commitments amid the current backdrop. Of course, the global semiconductor situation remains challenging. As the AI boom is increasing input costs, we continue to take actions and… to mitigate this impact by working closely with both our customers and suppliers, of course, including our pricing…. We’re not immune to these disturbances… they will have consequences on price and availability.”

When asked for further details by analysts on the earnings call, CFO Lars Sandström noted that there is “a headwind coming… we should remember that it is a smaller part of our total cost base, of course, but there is a headwind coming and we are working hard to mitigate, together with our suppliers but also together with our customers, to share the burden here.”

The CFO added: “It is a bit too early to say how the impact will be, but… you will see [it] more coming into the second half of the year.”

- Ray Le Maistre, Editorial Director, TelecomTV