Ericsson’s quarterly core profit misses estimates on rising costs

Sweden’s Ericsson, under the shadow of bribery investigations, on Thursday reported a rise in second-quarter core earnings but missed expectations as increased component and logistics costs hit margins.

Soaring inflation, a chip shortage and Russia’s invasion of Ukraine has led to increased costs, resulting in gross margin falling to 42.1% from 43.4%. The results were also hit by patent disputes, including one with Apple, that decreased revenue by 0.9 billion crowns.

Ericsson’s total quarterly revenue rose to 62.5 billion crowns from 54.9 billion, beating estimates of 61.45 billion crowns.

“The global supply chain situation remains challenging … this results in cost increases which we work hard to mitigate as far as possible,” Chief Executive Borje Ekholm said in a statement. “As contracts expire, we aim to adjust pricing.”

The company is also battling the fallout of a bribery scandal in Iraq that led to the U.S. Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) opening investigations against the company.

Ericsson said on Thursday it was engaging with the DOJ and the SEC in relation to the Iraq probe, and that the outcome of the matters could not be assessed at this point in time.

Despite the distractions, Ericsson was able to sell more 5G equipment as telecom operators race to upgrade their networks at a rapid clip, benefiting the company and its Nordic rival Nokia.

Ericsson’s quarterly adjusted operating earnings rose to 7.3 billion Swedish crowns ($689.28 million) from 5.8 billion a year earlier, missing analysts’ mean forecast of 8.01 billion, according to Refinitiv data.