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Ericsson's Core Profit Misses as Rising Costs Hit Margins


Asharq Al-Awsat


Ericsson, the Swedish telecoms equipment firm which is facing bribery investigations, reported a rise in second-quarter core earnings on Thursday but missed expectations as margins were hit by increased component and logistics costs.
Rising inflation, a chip shortage and Russia's invasion of Ukraine drove up costs and pushed down the firm's gross margin to 42.1% from 43.4%. It was also hit by patent disputes, including one with Apple, that cut its high-margin royalty revenue by 0.9 billion Swedish crowns ($85 million), Reuters reported.
"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 from a bribery scandal related to its work in Iraq that led the US Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) to open investigations into the company.
Ericsson said it was engaging with the DOJ and the SEC, and said the outcome of the matters could not be assessed yet.
Another investigation by a US security panel delayed the closure of its $6.2 billion Vonage acquisition. Ericsson now expects it to close in July.
Despite those distractions, Ericsson's sales in North America and Europe rose as telecom operators raced to upgrade their networks, helping Ericsson and its rival Nokia.
"We have a 39% market share, excluding China, of the global market, and that is several percentage points up during the last period," Chief Financial Officer Carl Mellander told Reuters.
Ericsson's quarterly revenue rose to 62.5 billion crowns from 54.9 billion, beating estimates of 61.45 billion crowns.
Quarterly adjusted operating earnings rose to 7.3 billion crowns from 5.8 billion crowns a year earlier, missing analysts' mean forecast of 8.01 billion crowns, according to Refinitiv data.

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