Ericsson Reports 7% Organic Sales Growth in Q3 2026

On Thursday, Telefonaktiebolaget L M (NASDAQ: ERIC ) discussed third-quarter financial results during its earnings call. The full transcript is provided below. This transcript is brought to you APIs. For real-time access to our entire catalog, please visit for a consultation.

View the webcast at Summary Telefonaktiebolaget L M Ericsson reported a strong third quarter with a 7% organic sales growth, driven by customer demand and effective commercial execution, leading to a gross margin of 47.7% and an EBITDA margin of 17%. The company announced strategic initiatives including the creation of a new Market Area Asia Pacific and restructuring of Enterprise Wireless Solutions to capture R&D synergies and accelerate growth. Ericsson highlighted challenges such as increasing component costs and a flat RAN market, and plans to mitigate these through portfolio optimization, raising prices, and improving supply chain efficiency.

Operational highlights include a 9% increase in Networks segment sales, with growth driven by strong commercial momentum and customer behavior shifts, while Enterprise sales saw a decline due to the divestment of iconectiv. Management reiterated a cautious outlook for Q4 and 2027 due to geopolitical and macroeconomic uncertainties, with a focus on maintaining cost discipline and leveraging AI to enhance network performance. Full Transcript Daniel, Investor Relations Hello everyone and welcome to the presentation of Ericsson's third quarter 2026 results. Joining us today we have Per Avinger, our President and CEO, and also Lars Armstrom, our Chief Financial Officer.

As usual, we'll have a short presentation followed by Q and A. And in order to ask a question, you'll need to join the conference by phone. Details are available in the earnings release and also on the investor relations website. Today's presentation contains forward-looking statements and is being recorded.

Actual results may differ materially due to various risks and uncertainties. Please refer to today's earnings report and the annual report for additional information. I'll now hand the call over to Per for his introductory comments. Per Avinger, President and CEO Thanks, Daniel, and good morning everyone.

So, today marks my first earnings call as CEO of Ericsson. I'm pleased to begin by reporting a strong third quarter where we are executing well in a challenging environment. So, looking at top line, organic sales grew 7% with organic growth in all segments. Growth was driven by solid customer demand in strategic markets and effective commercial execution.

Our gross margin was 47.7% and EBITDA margin came in at 17%. The quarter demonstrates the earnings leverage we create with sales growth and discipline on costs. So Lars will soon go through the numbers in more detail. Let me give a few more general reflections first.

So, since the announcement of my appointment, I have spent a lot of time meeting with customers. And a consistent theme is the need for increasingly intelligent and autonomous networks to improve performance, efficiency and customer experience. So, with the rapid development of AI, it's obvious that many new applications are going to be dependent on mobile connectivity. This means that networks will need to be even more reliable and resilient in the future.

We are well positioned to help our customers on this journey. So, with AI models optimized for their use cases and leveraging Ericsson's purpose-built silicon, we enable our customers to get more out of their spectrum assets without increasing power consumption. So we will continue to invest and make sure we stay on the forefront of this development. At the same time, we remain realistic about the market.

The RAN market is broadly flat and component costs are increasing in the wake of the AI boom. So far we've been able to mitigate with tactical actions such as product substitution and upselling. These tactical efforts, however, will not be enough long term. We are also taking structural action, including portfolio optimization, raising prices, supply chain measures and efficiency improvements.

Many customer contracts are multi-year, so structural mitigations will take time to flow through. We will not be immune to higher component costs, but protecting the value of our technology and the profitability of our mobile networks business remains our top priority. We are also maintaining cost discipline while at the same time prioritizing the investments needed for technology leadership and supporting our customers. The organizational changes that we announced today are part of that work.

So from January we are creating Market Area Asia Pacific by combining Northeast Asia with Southeast Asia, Oceania and India. This will help us operate more effectively across the region while maintaining strong customer focus at country level. We are strengthening our focus on seamless connectivity and want to make sure that we can offer a rich indoor portfolio that leverages the full R&D competence in the company. We are therefore making changes to Enterprise Wireless Solutions to capture these R&D synergies, drive product innovation and accelerate growth with both CSPs and enterprise customers.

These changes will also create a leaner executive team with clear accountability and ability to move fast in a dynamic market. So with that I will hand over to Lars to go through the financial results in more detail. Lars Armstrom, Chief Financial Officer Alright, thank you Per. I will begin with some additional comments on the group before moving on to the segments.

Net sales in Q3 totalled 59.5 billion with organic sales increasing 7% year over year. Sales in all market areas grew with the exception of Americas which reported a slight decline of 1%. In Americas, sales grew slightly in North America but were lower in Latin America. In the other market areas, sales were driven by Japan, India, Vietnam and the Middle East.

Sales in Market Area Other grew with enterprise sales broadly stable and growth in IPR. IPR revenues were 3.9 billion with an increase of 0.8 billion year over year. Part of the increase is due to retroactive revenue related to previously unlicensed periods. The current IPR run rate is approximately 13.5 billion.

Turning to the rest of the P&L, adjusted gross income was 28.4 billion with a gross margin close to 48%. Gross income increased year over year by 1.4 billion due to higher sales in Mobile Networks. Gross margin was broadly stable. On the cost side, we were affected by component cost increases mostly in Networks.

I will cover this in more detail later. Operating expenses excluding restructuring charges improved to 18.4 billion, around 0.7 billion lower year over year. Cost reduction actions are mitigating wage pressures. Adjusted EBITDA was 10.1 billion excluding the divestment of iconectiv.

EBITDA increased year on year. The EBITDA margin was 17% showing the benefits of operating leverage with higher sales. Cash flow before M&A was 4.9 billion driven by earnings and impacted by higher inventories. I will come back to this later.

Let's move to the segments. In Networks, sales increased by 9% year over year to 48.7 billion. Year to date, organic sales grew by 4%. Organic sales grew in all market areas with the exception of Americas.

North America grew slightly while Latin America declined. Sales were driven by three main building blocks. First, our strong commercial momentum in the past 12 to 18 months is translating into share gains and financial performance in strategic markets, for example Japan. Second, we are seeing a near-term shift in customer behavior with some customers accelerating spend before price increases, and third, good commercial execution on the near-term sales mitigation activities.

As you know, we put these in place to support sales and margins as component costs increase. Networks' adjusted gross margin was stable at 50.3%, benefiting from product mix and retroactive IPR licensing revenues offsetting some of the component cost increases. Adjusted gross income increased to 19.4 billion and adjusted EBITDA was 9.0 billion, up from 7.2 billion last year mostly due to higher sales. Adjusted EBITDA margin was 23.1%.

Looking at the right-hand graph, the rolling four-quarter adjusted gross margin was around 50% and adjusted EBITDA margin around 21%. Moving over to Cloud Software and Services, sales increased by 3% to 15.8 billion. Growth was broad-based across the commodities and benefited from growth in adjacencies leveraging our capabilities into non-CSP verticals. Adjusted gross margin came in at 43.5%, broadly stable compared to last year.

Adjusted gross income increased to 6.9 billion and adjusted EBITDA increased slightly to 2.0 billion with a margin close to 13%. Looking at the right-hand graph here, the rolling four-quarter adjusted gross margin was around 44% and adjusted EBITDA margin around 13%. Then on Enterprise, reported sales decreased by 10% due to the sale of iconectiv in the prior year. On an organic basis, Enterprise sales grew by 1%, and within Enterprise we are seeing good customer momentum in the enterprise 5G private networks.

And as Per mentioned, the changes announced today will capture R&D synergies, drive product innovation, accelerate growth. Adjusted gross margin declined to 50% reflecting the impact of the divestment of iconectiv. Adjusted EBITDA landed at minus 0.5 billion and improved sequentially. Efficiency actions are underway to improve profitability further.

Then turning to free cash flow, which was 4.9 billion before M&A in the quarter. Cash flow generation was supported by earnings but impacted by increased operating net assets, mainly inventories. The build-up in inventory was due to higher component prices as well as the usual buildup of finished goods ahead of Q4. We delivered a cash flow to net sales of 11% for the rolling four quarters, within our 9 to 12% target.

Net cash increased sequentially to 60.7 billion, gross cash increased to 98 billion and we raised a EUR 500 million bond in Q3, preparing for upcoming maturities. The share buyback continued in Q3 with 4.5 billion of cash flow used for buybacks, impacting net cash. Year to date, this has delivered 8 billion back to shareholders with 79 million shares repurchased alongside 5 billion of dividends. Next, I will cover the outlook.

Global uncertainty remains elevated. Given the broad geopolitical and macroeconomic environment, including the global semiconductor situation, we are not immune. The industry is entering a period of higher input costs and the financial impact will continue to build up in the coming quarters. Our near-term mitigation actions across the business, mainly commercial measures, are working well so far.

As Per mentioned, we are continuing with our plans to gradually implement longer-term structural actions. These will be needed to more sustainably offset these impacts and protect our position in the value chain. We are adjusting pricing in current tenders and discussing to broaden price increases and commercial mitigations with current customers. We are also continuing efficiency and supply chain actions.

Turning to the Q4 outlook, the outlook assumes the exchange rates specified in the report. And for Networks and Cloud Software and Services, we expect sales growth to be broadly similar to the three-year average quarter-on-quarter seasonality. We expect Networks' adjusted gross margin to be in the range of 49 to 51%, benefiting from product mix. Restructuring charges for 2026 will be elevated, as you have already seen in the first nine months.

With that, I hand back to you, Per. Per Avinger, President and CEO Thank you, Lars. So, let me close with three messages. First, we are executing from a position of strength.

The quarter demonstrates the earnings potential of Ericsson when customer demand, commercial execution and cost discipline come together. Second, we are acting decisively on challenges ahead. We are addressing higher component costs and a broadly flat RAN market while protecting the investments that underpin our technology leadership. Third, the opportunity ahead is significant.

AI will increase the demand placed on mobile networks and create new opportunities for our customers. With our technology, customer relationships and the actions we are taking, Ericsson is well positioned to deliver sustainable, profitable long-term growth across the group. Finally, I'd like to give a big thank you to all of my Ericsson colleagues for their contribution to the quarter and their commitment to our customers. And with that, Daniel, let us open up the line for questions.

Daniel, Investor Relations Thanks, Per. We'll now move to the Q and A portion of the presentation as usual. To ask a question, please press star one and one on your phone and wait for your name to be announced. If you're streaming the webcast, please mute the webcast audio while asking a question to avoid any feedback.

And as usual, if I can request one question per participant so we have time to hear from as many of you as possible, please. Thank you. Operator, we're now ready to go to the first question. The first question today is going to come from the line of Simon Granath at ABG.

Please go ahead, Simon. Simon Granath, Analyst Thank you. Morning, Per, Lars and Daniel, and especially congrats on the new position. Per, I have a question around investment trends.

In light of recent news about satellite operators potentially looking into buying and building their own terrestrial network, could you talk about whether you see this as an emerging opportunity for Ericsson? And what is your assessment as to how operators are responding to this? Are they revising any capex round priorities due to these industry dynamics? Thank you.

Per Avinger, President and CEO Thank you, Simon. It's a very good question. We discuss satellite with most of our customers at the moment, to be honest. First of all, for the end user, satellite communication will be a fantastic addition to terrestrial networks.

What we see will be very important is to have a seamless connectivity between outdoor and indoor. Obviously that's going to be one of the challenges for satellite, how to take the outdoor coverage indoor. So we believe that for our customers that seamless high-performing experience is going to be very, very important. That's also one of the reasons now that we are consolidating our R&D efforts in the indoor segment, meaning that we then also move our activities from our Enterprise Wireless Solutions business area into Networks.

So overall we would want to see this as it actually shows the importance of connectivity. There will be more players for connectivity, but you cannot rely on satellite alone. You're going to need the terrestrial coverage as well. So we basically see it as positive.

Daniel, Investor Relations Thanks for the question, Simon. Moving to the next question please, Operator. The next question is going to come from the line of Andreas Jolsen at DNB. Andreas, please go ahead.

Andreas Jolsen, Analyst at DNB Thanks a lot and good morning everyone. A question on sales and the demand and how we should look at that going forward. It's very strong in the quarter, obviously, and the outlook for Q4 states that it will be normal seasonal patterns, also a quite strong end to the year. And then you say that the market is broadly flat.

So how should we look at this into 2027? Is a flat market also the most likely going forward, and also how that impacts your long-term mitigating or actions to the higher component costs — can you be a little bit more sort of clear in what you do to further mitigate because you've obviously been quite successful so far? Lars Armstrom, Chief Financial Officer Thank you, Andreas. Maybe I start.

So what we are seeing is a strong quarter in sales, as you are alluding to. There is a lot of headwind on the cost side and we of course sit on fairly long contracts with our suppliers. We also sit with long contracts with our customers and that means in the short term what we can work with is tactical actions, and that would be things like upselling, making sure we do product substitution so we have products with a better cost profile in what we are selling. Those are the kind of tactical actions we are taking.

You could also probably see some kind of signal looking at the product mix because there are less services. So maybe some of our customers are now trying to buy before price increases, because we are signaling that we do see that this AI demand will continue, meaning of course cost on the components will be high also next year, and you can only do tactical actions for so long. So that means we need to get some of these more long-term actions in place for next year, meaning we need to get prices up with our customers as of course then contracts get renewed over time. This will of course ripple through the P&L.

Our view is that this is of course structural. Everyone is having the same challenge, meaning in the end we as a supplier cannot absorb these costs. They have to be passed on. But of course there can be a transition period, and that's what we are saying — that 27 could be such a transition period.

But obviously this quarter we have managed well with tactical actions. I don't know if there's anything you want to add to that, Lars. Per Avinger, President and CEO I think you asked on the demand and our ability to grow, and I think we have not changed our view on the RAN market per se. Then of course we work closely with our customers: how can we grow, how can we with our technology gain market share, etc.

What can we do in the adjacencies, etc. So our clear ambition is of course to capture some of that opportunity also in 2027 as we have done in 2026. Daniel, Investor Relations Thank you. Thanks, Andreas.

Moving on to the next question please, Operator.