Ericsson's Networks rebound lifts shares 11.7%; component costs cloud 2027

ERIC · Published October 15, 2026 · Filing dated October 15, 2026 · Open the filing ↗

Summary

The shares rose from $9.59 to $10.71 on October 15, against 0.3% for the S&P 500 fund and about 1.8% for rival Nokia.1 Net income fell to SEK 5.8 billion from SEK 11.3 billion because last year held a SEK 7.6 billion sale gain; without it, adjusted operating profit rose, to SEK 10.1 billion.2 The risks: licensing revenue ran about SEK 0.5 billion above its recurring pace, and the Americas slipped 1%.3 Nine-month free cash flow was 6.9% of sales, below the 9% to 12% goal, against about 7% at the same point last year (SEK 11.9 billion).4 Full-year 2025 still reached SEK 26.8 billion, about 11%, inside the goal; the year's last months carried it.5 The cushion: net cash of SEK 60.7 billion at September 30, about SEK 55.7 billion after the SEK 5.0 billion dividend paid October 2, and about SEK 5.8 billion of the SEK 15 billion buyback left after purchases through October 9.6 The full-year report on January 22, 2027 tests the 49% to 51% Networks margin Ericsson guides for the fourth quarter.7

Who Ericsson is and how 2026 went

Ericsson is a Swedish company that builds the radio networks mobile carriers run, and its 2025 annual report puts its share of that market outside China at around 37%.1 Sales in 2025 were SEK 236.7 billion (Swedish kronor), down 5%, and the United States was its largest market at 40% of revenue.2 The company calls its business highly cyclical, with a very concentrated customer base.3 Each American share traded on Nasdaq stands for one Class B share, and Investor AB, the largest holder, has about 24.8% of the votes.4

The first half of 2026 was weak in North America. In the first quarter, Networks sales there fell because carriers had sped up buying the year before, partly on tariff fears.1 In the second quarter, organic sales, which strip out currency swings and deals, fell 1%, and Networks fell 4%, mainly because licensing revenue dropped.2 Per Narvinger became chief executive on October 1, 2026, shortly before this report.3

Ericsson's long-term goals are an adjusted EBITA margin of 15% to 18% and free cash flow before acquisitions of 9% to 12% of sales. Adjusted EBITA is the operating profit measure behind that goal, and Ericsson's adjusted figures exclude restructuring charges.1 In 2025 the company produced SEK 26.8 billion of free cash flow before acquisitions, and it says it is committed to an investment grade credit rating and a solid net cash position.2

A stronger quarter, with some help

Third-quarter sales rose 6% to SEK 59.5 billion from SEK 56.2 billion, and 7% on an organic basis.1 Networks, the radio equipment unit, grew 9% to SEK 38.7 billion, a 9% organic gain after a 4% organic drop in the second quarter.2 Cloud Software and Services rose 3% to SEK 15.8 billion, while Enterprise fell 10% to SEK 4.6 billion because iconectiv was sold in the third quarter of 2025. For the first nine months, sales were still down 4% at SEK 161.5 billion.3

Growth leaned on Asia. North East Asia grew 22% organically, mainly on Japan, and South East Asia, Oceania and India grew 25% organically to SEK 8.8 billion.1 The Americas slipped 1% organically, and the United States made up 38% of the quarter's sales.2 Ericsson's own release says near-term commercial actions supported the organic growth, which suggests some of it may not repeat.3

Adjusted EBITA fell to SEK 10.1 billion from SEK 15.8 billion, and its margin to 17.0% from 28.1%.1 That comparison is distorted. Last year's quarter held a SEK 7.6 billion gain from the iconectiv sale, so without it last year's figure was about SEK 8.2 billion, and Ericsson says adjusted EBITA rose on that basis.2 Reported EBITA, after SEK 0.9 billion of restructuring charges, was SEK 9.2 billion.3

Net income fell to SEK 5.8 billion from SEK 11.3 billion, and diluted earnings per share to SEK 1.77 from SEK 3.33.1 Last year's per-share figure held a SEK 1.72 gain, so on a like-for-like basis it was about SEK 1.61, below this year's SEK 1.77.2 Restructuring is not a one-off this year: nine-month charges reached SEK 5.3 billion, and Ericsson expects them to stay elevated in 2026. Financial expenses also rose to SEK 1.2 billion in the quarter, partly from interest provisions tied to settling tax matters.3

Networks earned SEK 9.0 billion of adjusted EBITA, up from SEK 7.2 billion.1 Its adjusted gross margin was 50.3%, above the 48% to 50% range Ericsson guided with its second-quarter report. The company says that margin included a boost from product mix and back-dated licensing fees, partly offset by higher component costs.2 Patent licensing revenue rose to SEK 3.9 billion from SEK 3.1 billion. Ericsson puts its recurring licensing revenue at about SEK 13.5 billion a year, or about SEK 3.4 billion a quarter, so this quarter ran roughly SEK 0.5 billion above that pace.3 Licensing swings both ways: in the second quarter it pulled organic sales down because the year-earlier quarter had a one-time partial settlement. Enterprise lost SEK 0.5 billion on an adjusted EBITA basis this quarter.4

Free cash flow before acquisitions was SEK 4.9 billion, down from SEK 6.6 billion.1 For the first nine months it was SEK 11.2 billion, or 6.9% of sales, a little below the roughly 7.1% of a year earlier and short of the 9% to 12% full-year goal, which last year was reached only on a strong fourth quarter.2 Over nine months the main drag is stock on hand. Inventories rose to SEK 35.4 billion from SEK 23.5 billion at the end of 2025, which the company ties to the timing of project deliveries and higher component prices.3 In the third quarter alone, a SEK 5.4 billion fall in contract liabilities used more cash than the SEK 4.1 billion inventory build.4

The balance sheet is strong. Gross cash rose to SEK 98.0 billion, and net cash, meaning cash minus borrowings, rose to SEK 60.7 billion.1 Borrowings were SEK 37.3 billion, of which SEK 9.5 billion is current, and a EUR 500 million bond sold in September brought in SEK 5.5 billion.2 A SEK 5.0 billion dividend went out on October 2, after the quarter closed, which by itself would bring net cash to about SEK 55.7 billion.3

Debt is about 1.1 times the past year's adjusted EBITA, and the quarter's adjusted EBITA covered its financial expenses about 8 times.1 The annual report says Ericsson's funding programs carry no financial covenants, and it had SEK 23.0 billion of unused committed credit lines at the end of 2025.2 S&P and Fitch rate it BBB- with a stable outlook, the lowest investment grade, while Moody's rates it Ba1, just below investment grade, with a positive outlook.3

Ericsson bought back 49.2 million Class B shares for SEK 4.8 billion in the quarter, about SEK 97.5 each.1 So far this year it has bought 78.8 million shares for SEK 8.1 billion, leaving about SEK 6.9 billion of the SEK 15 billion program at September 30; the program ends by March 31, 2027 at the latest.2 It kept buying after the quarter ended, with a weekly notice covering October 5 to October 9, 2026.3 That week it bought 7.9 million shares at an average of SEK 94.27, at a cost of SEK 0.75 billion, so less than SEK 6.2 billion of the program remained.4 It also bought about 3.8 million shares on October 1 and 2, so by our estimate roughly SEK 5.8 billion of the program was left after the early-October purchases.5 Basic shares outstanding fell to 3,257 million from 3,333 million a year earlier, and diluted shares were 3,267 million. The board intends to ask the 2027 annual meeting to cancel the repurchased shares, except those used for employee share plans.6 Over the first nine months, dividends of SEK 5.0 billion plus buybacks of SEK 7.8 billion came to SEK 12.8 billion, more than the SEK 11.2 billion of free cash flow, so part came from the cash pile.7

On the same day, Ericsson said it will merge its two Asian market areas into one Asia-Pacific unit from January 1, 2027, and move the parts of its Enterprise Wireless Solutions business into other units.1 Three Executive Team members leave their posts on December 31, 2026.2 The stated aim is better use of research and development, closer focus on customers and lower costs. The release gives no cost or savings figures.3

For the fourth quarter, Ericsson guides a Networks adjusted gross margin of 49% to 51%, and sales growth broadly in line with its three-year seasonal pattern.1 For Networks that pattern is a 17% rise from the third quarter to the fourth, which by our estimate would mean roughly SEK 45 billion of Networks sales.2 Ericsson also says the radio network market is flat, political uncertainty is high, and component costs are a headwind to gross margin next year. It is using product choices, pricing and efficiency work to help offset those costs.3

The American shares closed at $9.59 on October 14 and were $10.71 at the close on October 15, up 11.7%, against 0.3% for the S&P 500 fund and about 1.8% for Nokia.1 At $10.71 on 3,257 million basic shares, the market value is roughly $35 billion.2 At the September 30 rate of 9.97 kronor per dollar, $10.71 is about SEK 107 a share, above the SEK 94.27 average Ericsson paid in early October. Last year's SEK 26.8 billion of free cash flow is about $2.7 billion at that rate, or about 8% of market value.3 Our price file starts in mid-September. Since then the shares had closed between $9.165 on September 30 and $10.285 on September 17, so the jump took them above that range.4

The bull case: growth returned after a weak second quarter, the Networks margin beat the top of guidance, and underlying profit rose once last year's gain is set aside.1 The adjusted EBITA margin over the past year was 15.3%, inside the company's long-term goal, and Ericsson holds SEK 60.7 billion of net cash while shrinking its share count.2

The bear case, strongest point first. The margin beat had help, since back-dated licensing fees and product mix lifted Networks, and licensing ran about SEK 0.5 billion above its recurring pace.1 Next year carries a component cost headwind of a size Ericsson has not given. The Americas, home to its biggest market, fell 1%, and the radio market is flat.2 Cash is lagging profit: inventories are up about SEK 12.0 billion since year-end, and with nine-month free cash flow at SEK 11.2 billion, by our estimate the fourth quarter must bring in about SEK 10 billion to reach the 9% floor of the goal, against about SEK 14.9 billion in the fourth quarter of 2025.3

Legal risks remain open. Ericsson says it continues to cooperate with the US Department of Justice on past conduct in Iraq and elsewhere, and that the scope and duration of that probe are uncertain.1 A fifth lawsuit under the US Anti-Terrorism Act was filed in September 2026, and 93 claimants are suing in Sweden. China's market regulator can impose behavioral and financial remedies if it finds against Ericsson's patent licensing.2

The dates to watch: three executives leave on December 31, 2026, the Asia-Pacific unit starts on January 1, 2027, the full-year report comes on January 22, 2027, and the buyback must end by March 31, 2027.1 The bull case is wrong if fourth-quarter Networks margin lands below the 49% bottom of guidance, or if component costs cut deeply into gross margin next year.2 The bear case is wrong if Networks margin stays inside the guided range without back-dated fees, and if inventories built on project timing and component prices turn back into cash.3 The first test comes with the full-year report on January 22, 2027.4

What is still unknown

Ericsson says back-dated licensing fees lifted the Networks margin, but it does not say how large they were or which customer paid them. Our SEK 0.5 billion gap to the recurring pace is only an estimate.

The release on the new structure names its aims but gives no restructuring charge, savings target or job count.

Ericsson calls component costs a headwind to gross margin next year but gives no size or range.

None of the filings or pages we have give an analyst forecast for third-quarter sales or profit, so we cannot say whether the results beat expectations.

Ericsson gives no estimate of any penalty or settlement from the US Justice Department probe and says its scope and duration are uncertain.

Our price data start in mid-September 2026, so we cannot confirm where the $10.71 close sits against the shares' high and low of the past year.

The question that remains

Will ERIC stock close above $9 on January 21, 2027?

Our call: We say YES

We find out by January 21, 2027.

What do you think of our call? Join the discussion.

Sources

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