Ericsson treated harshly by investors after another margin decline
Swedish kit vendor Ericsson revealed a lower-than-expected gross margin in its Q2 2022 report but a share price hit of -8%, at time of writing, as a result seems excessive.
July 14, 2022
Swedish kit vendor Ericsson revealed a lower-than-expected gross margin in its Q2 2022 report but a share price hit of -8%, at time of writing, as a result seems excessive.
Overall sales grew by 5% when adjusted for adjustments which, inflation notwithstanding, seems healthy enough. But gross margin was 42.2%, excluding restructuring charges, which is down a fair bit from the 43.4% Ericsson managed in the year-ago quarter. Sequentially, however, there was barely any decline at all, so it’s not obvious why the stock market decided to have such a panic attack.
We had a chat with Fredrik Jejdling, Head of Business Area Networks at Ericsson, who kindly accommodated our lateness due to an inability to deal with the concept of time zones. He pointed to a few exceptional circumstances affecting the margin, including the delayed renewal of a major IPR deal (possibly with Apple), the tough supply chain environment and rampant inflation. Underneath it all, however, lies Ericsson’s desire to invest for the long term, something many investors seem inclined to scoff at.