Ericsson (AO) | Hold | Q2 2026E results preview (14 July before market)

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Ericsson (AO) | Hold | Q2 2026E results preview (14 July before market)

and operating efficiencies offset by some cost inflation, including memory prices with the

ongoing shortages and significant price inflation in the DRAM market), slightly higher margins in cloud software & services (10%

margins, up by 40bps YOY), and higher losses in the enterprise division (SEK900m of adjusted EBITA losses vs. SEK500m a year

ago, affected by the deconsolidation of Iconectiv, which was highly profitable with adjusted EBITA margins in the low-40s).

We believe Ericsson is set to generate c. SEK925m in FCF in Q2 (down by 68% YOY), due to lower adjusted EBITA (-12% YOY),

unfavourable WCR (SEK3bn cash outflow vs. SEK2.7bn cash outflow a year ago) and higher capex (SEK1bn, up by 40% YOY).

RAN market gradually stabilising, rather than resilient gross margins in networks ahead

Dell’Oro still sees the RAN market stabilising in 2026 (down by 2% after -1% in 2025 and a 25% drop since 2021), with the US down

by 5-10%, Europe flattish and China down by 10%.

We still see a soft mid-term outlook for the RAN market, with low-single-digit growth in the coming years, and some upside

toward the end of the decade for European vendors (with the potential swap of the Chinese kits in Europe, some incremental

opportunities within the defence sector and some potential upside from AI ultimately, while the strength of the 6G cycle remains

uncertain at this stage).

We believe Ericsson should confirm rather resilient adjusted gross margins in networks in Q3 (we expect 50.4% margins, vs. 50%

expected in Q2 2026E and 50.1% in Q3 2025).

While Ericsson has strongly recovered over the past two years with its adjusted EBITA margins climbing to 14.9% in 2025 (up from