Sales and adjusted operating profit both topped expectations and the shares jumped about 10%, but the company flagged rising component costs that will weigh on margins next year.
Ericsson beat forecasts by a wide margin, and its stock moved against a falling technology sector.
The Swedish network equipment maker said Thursday that third-quarter net sales rose 6% to 59.48 billion Swedish kronor, with organic growth of 7%. Analysts had expected about SEK 55.39 billion, according to a consensus compiled before the report. Adjusted earnings before interest, taxes and amortization were SEK 10.12 billion, a 17.0% margin, against a consensus of about SEK 7.94 billion from the same survey.
Shares were up 9.9% in Stockholm by midmorning local time, and the U.S.-listed shares traded about 12% higher at about 6:10 a.m. ET, while European technology stocks fell about 3%.
What drove it
Ericsson said organic growth was "primarily driven by higher sales in Networks." It also said the Networks margin was "supported by retroactive IPR revenues," meaning licensing income for intellectual property relating to earlier periods. Total licensing revenue was SEK 3.9 billion, up SEK 0.8 billion from a year earlier, according to accounts of the earnings call, but the company did not say how much of it was retroactive. Back-dated licensing payments tend to be lumpy, so the size of that piece matters for how much of the beat carries into future quarters.
Adjusted gross margin was 47.7%, slightly lower than 48.1% a year earlier. Free cash flow before acquisitions was SEK 4.9 billion. Ericsson ended the quarter with net cash of SEK 60.7 billion and bought back SEK 4.8 billion of stock during the period.
The year-ago comparison
Net income fell to SEK 5.8 billion from SEK 11.3 billion, and diluted earnings per share fell to SEK 1.77 from SEK 3.33. Adjusted EBITA also fell, to SEK 10.1 billion from SEK 15.8 billion. Both comparisons are distorted by a one-time item: the prior-year quarter included a SEK 7.6 billion gain, or SEK 1.72 a share, from the sale of iconectiv, and Ericsson's adjusted measures exclude only restructuring charges. Excluding that gain, adjusted EBITA increased, the company said.
The warning
The company said it is pursuing pricing and efficiency measures "to help offset higher component costs." Chief Executive Per Narvinger said the market for radio access network equipment is flat and that higher component costs are expected to weigh somewhat on gross margin next year.
"We delivered strong third-quarter results," Narvinger said.
The debate
The bullish reading is that Ericsson is growing organically in a flat market, generating cash and returning it to shareholders.
The cautious reading is that part of the beat came from one-time licensing catch-up, the end market is not growing, and component inflation is a known headwind for 2027 margins. The same rising component prices were cited by TSMC on Thursday as a pressure on consumer and price-sensitive markets.
What to watch
Whether retroactive licensing revenue is collected as cash in coming quarters, results from Nokia and other network peers, and whether pricing actions offset component costs in the fourth quarter.