• Ericsson has reported flat revenues but better margins for the first quarter of 2025
• The vendor’s management team is bullish about growth in North America, but sales in most other regions are shrinking
• But US tariff uncertainty is causing concern – Ericsson is addressing its already globally diversified supply chain with a focus on a ‘western ecosystem’ 
• CEO is confident the vendor’s strategy is working and its share price is on the rise despite global economic turmoil

Ahead of Ericsson’s first-quarter earnings call on Tuesday, there was little doubt among financial analysts that many questions would revolve around the impact on the Swedish telecom tech vendor of US President Donald Trump’s unpredictable tariff regime and, as expected, that topic dominated the early morning session. 

Overall, the Ericsson team currently expects there to be some negative impact, though nothing too onerous, and there is no sign of panic-buying by customers in an attempt to build up inventory ahead of any tariff deadlines, mainly because no one really knows what is going to happen in the coming weeks and days: Essentially, it’s a case of making the best possible guess based on current information, which is a combination of official federal announcements and Trump’s social media tub-thumping and then seeing how the world pans out. From Ericsson’s perspective, though, it has quite a geographically diversified supply chain already with production plans and supply hubs spread around the world (see the map below), so it has some product manufacturing and supply chain wiggle room (more on this later in the article).

What is more certain is that, for Ericsson at least, customer spending in North America is one the rise, and the vendor believes this is a positive bellwether for other markets. Its ongoing cost controls are helping margins to improve too – Ericsson’s first-quarter gross margin was 48.2%, up from 42.5% a year earlier, while its operating profit margin was 10.8% up from 7.7%. These trends helped Ericsson’s share price to make noteworthy gains on the Stockholm exchange on Tuesday morning, with the vendor’s stock up by 5.5% to 77.68 Swedish krona (SEK). 

But its overall sales are not growing – first-quarter revenues of SEK 55bn ($5.64bn) are, in organic terms (stripping out the impact of currency fluctuations and portfolio adjustments), flat year on year – and revenues in most regions of the world are declining as telco capex purses remain tight and Chinese rivals Huawei and ZTE ramp up their efforts to gain new business and market share in many regions of the world at the expense of Ericsson and Nokia. 

The underlying challenge is that the market for radio access network (RAN) technology, Ericsson’s main line of business, shows no signs of growth and the company’s bet on a strong new source of sales in the enterprise networking and communications technology sector is not yet paying off. This is despite some big ticket acquisitions (Vonage for $6.2bn being the biggest) that haven’t lived up to expectations, leading to recent speculation about the potential replacement of current CEO Börje Ekholm. The topic of a potential change in CEO didn’t crop up at all on Tuesday’s call with analysts which, of course, was hosted and led by Ekholm, who is as bullish as ever about the vendor’s market strength, prospects and plans: “Our strategy is working,” he proclaimed. Some would question what “working” means in that context, as the company currently appears to be running fast to stand still. 

But there are a few positive trends to note. The Americas is a massive regional market for Ericsson – it accounted for almost 38% of total sales in the first quarter – and the vendor’s business there is growing thanks to greater telco spending in the US. Ekholm was keen to point out that the uptick is coming from all customers and not just from AT&T, with which Ericsson currently has a major RAN contract (worth $14bn over five years). Revenues from the Americas stood at SEK 20.8bn ($2.13bn) in the first quarter, up by 20% year on year on an organic basis, with “good growth” in North America but a sales decline in Latin America, where the Chinese vendors are particularly strong. 

That growth in the Americas essentially saved Ericsson’s first quarter, as every other region posted a year-on-year decline in revenues. But for Ekholm, what happens in North America normally happens elsewhere later – “historically, North America is a front runner in the adoption of new technology, and thereby often a leading indicator for other markets,” the CEO stated – so he’s confident that sales in other regions will pick up as network operators invest in capacity and coverage and switch their strategic RAN focus to “programmable networks”, which is how the CEO paints the Open RAN deal with AT&T and the similar type of deal struck with Telstra in Australia.   

Tariff turmoil

But the main event of the earnings call was the impact of decisions coming from The White House. 

“The current macro economic turmoil and tariffs are impacting our industry, and we will not be immune. We’ve taken actions over the many years to actually build resilience into our supply chain, including how and where we develop and manufacture our product,” noted Ekholm (see the map above). “So our focus remains on controlling what we actually can control, including, of course, pricing and spending. The actions we’ve taken position Ericsson well to succeed across varying market conditions,” claimed the CEO.    

Cost control will continue to play a big role at Ericsson, especially as the RAN market flatlines: The vendor’s CFO, Lars Sandström, noted during the earnings conference call that “we live in a flat RAN market, together with an inflationary market, that will require cost reductions to offset this part. That is… what we are working towards.”

But all potential actions will be affected by macro-economic trends. 

“The global turmoil we have seen in Q1, which has continued in recent weeks, is already having significant impacts, including [on] currency rates and global trade flows,” noted Sandström. “This can, of course, affect customer behaviours and investment decisions over time, but so far we have seen limited impacts. So there is increased uncertainty of our forecasts in a number of different areas, and the future is quite difficult to predict… Tariffs could, of course, change at any time, and the broader macro-economic environment and investment climate remains very uncertain, so it’s difficult to judge,” added the CFO, who expects a negative 1% impact on the gross margin of the vendor’s Networks “segment” (business unit) in the second quarter as a result of the tariffs. However, he added, “we still benefit from some earlier tariff mitigation actions in Q2 and if current tariff proposals stay the same, the Q2 impact could be a little bit higher.”

The Networks segment reported a gross margin rate of 50.8% for the first quarter, and the CFO is expecting that rate to be in the range of 48% to 50% in the second quarter.    

So is there any evidence of industry stockpiling ahead of further tariff impositions or changes? Not so much, according to the CFO. 

“We have production well diversified in different [regions] in North America, South America, Europe, Asia, etc. So that is the resilience we have built up over time,” he stated. On the topic of product stockpiling, “we had some inventory build-up already in Q1 in our own sites to make sure that we have materials in place and could handle a bit of the situation. But going forward, we don’t see a big impact from that. Also, from a customer perspective, we don’t expect too big an impact from this,” added Sandström. 

And can Ericsson be flexible on where it makes its products? “We can shift volumes between sites but it’s not a quick change, of course – we haven’t made any big changes yet because we don’t know actually where we’re going to land,” said the CFO. “So we will see in the coming months if we choose to ramp up or down between different sites, but it depends on where the tariffs actually land at the end of the day.” 

In the meantime, the company will be looking to strengthen its supply chain options and develop what CEO Ekholm calls a “western ecosystem”. 

“The ecosystem of component suppliers – that’s where we invested quite a lot over the years to broaden that, but that’s probably where we need to be a bit more active, to build a ‘western ecosystem’ in those components,” stated the CEO, a move that would mean relying less on chips from Asia and more on those from production plants in the US, it seems (but of course Ericsson will not be the only company thinking like this!). 

The CEO added: “Components and site materials… these are the [supply chain] flows we need to work on and we need to create. I call it the western ecosystem and that’s going to take some time,” but that is what will be needed to soften any tariff blows in the long term.  

- Ray Le Maistre, Editorial Director, TelecomTV