Telefonaktiebolaget LM Ericsson (publ) Q1 FY2026 earnings call

Q1 was a solid start with reporting sales falling 10% due to currency headwind, but organic growth of 6% with all segments contributing. We've balanced geographic mix less sensitive to it, network gross margin 50.4%, cloud software services gross margin up over 300 basis points year over year. EBITDA 5.6 billion kronor, margin 11.3%, cash flow 5.9 billion kroner, net cash 68.1 billion. In AI phase, high-performance mobile connectivity important, mission-critical networks and 5G-based sensing showing momentum.

Net sales in Q1 totaled 49.3 billion, with organic sales growing 6%. Network sales decreased 8% year-on-year to 32.9 billion, having a negative currency impact of 5.2 billion, but organic sales increased by 7%, and networks adjusted gross margin decreased slightly to 50.4%. Cloud software services sales decreased 9% to 11.8 billion, including a negative currency impact of 1.6 billion, with organic sales growing by 4%, and adjusted gross margin came in at 43.2%. Enterprise sales reported decreased 30% impacted by sale of iConnective and Currency, with organic growth of 4%, and adjusted EBITDA landed at minus 1.4 billion.

Q2 outlook: networks sales growth similar to three-year average quarter-on-quarter seasonality, cloud software services sales growth above three-year average. Network adjusted gross margin expected in range of 49-51%, restructuring charges for 2026 at elevated level with large part seen in Q1.

Global uncertainty remains elevated given broad geopolitical and macroeconomic environment, including global semiconductor situation, component price inflation poses headwind.

Q: Simon Granath on memory and cost inflation, A: When it comes to Outlook, we give Outlook for next quarter. MISI memory cost and other semiconductor costs have a headwind, we work with suppliers and customers to mitigate, but too early to say impact in second half.

Q: Andrew Gardner on North American revenue trends, A: Development in Q1 similar to year, less exposed to North America from geographic mix perspective, investments to diversify mix, India and Japan show healthy growth.

Q: Erik Lindholm on OPEX and cost savings, A: OPEX down organically, inflation related to people costs, continuous work on cost savings, measures will show more in second half and next year.

Q: Andreas Jolsen on COGS and gross margin, A: Work on prices, product substitution through technology development to lower cost, take costs out on service delivery.

Q: Richard Kramer on AI and sales growth, A: Exposure to AI from applications, not directly from data center expansions, benefit from overall migration of applications towards AI.

Q: Felix Hendrickson on cloud software services margin, A: Aim to reach stable double-digit margin, growth led by 5G core demand, have good market position.

Q: Ulrik on FX matching and hedging, A: Separate between gross margin and EBITDA margin, FX mix impacts beta more than gross margins, hedging levels low, not big impact going forward.

Q: Sandy on 5G and 5G core outside North America, A: Operators migrating to 5G SA and 5G advanced, providing opportunity for us as operators upgrade, invested in 5G core positioning.

Q: Daniel Djerberg on network margins and markets, A: Network across margins good despite mix, outlook for Q2 networks 49-51, signals stability.

Q: Sebastian Stabovitz on defense market opportunity, A: Defense market opportunity near term, reception from customers positive, expect materialize over next 9-18 months.

Q: Sami on input cost and operator agreements, A: Discussions with customers on price increases, energy costs impact TCO, customers focusing on energy efficiency.

Q: Oliver on logistics and transportation cost, A: Logistical impact limited, flexible supply chain to manage disturbances.

Q: Daniel Djerberg on Latin America and competition, A: Can't talk about specific customers, but compete well with Chinese competitors on product performance.