- Departing CEO Börje Ekholm led his last quarterly earnings call with Ericsson
- He said Ericsson remains cautious as it plans for a flattish RAN market
- Ekholm expects the next phase of AI will demand stronger mobile connectivity
Ericsson shares were down more than 12% today, trading around $10.30, after the Swedish equipment maker reported a 1% Q2 sales decrease year-over-year primarily due to lower IPR licensing revenues.
Revenue fell 6% year-over-year to $5.4 billion in Q2 while earnings before interest and taxes totaled $609 million.
In North America, Ericsson has seen diminished demand for its products and signaled last quarter that it would place less importance on the market going forward. In Q2, sales grew in Latin America but were again lower in North America.
Ericsson pursues price increases
Overall, one of Ericsson’s biggest problems is higher component costs driven by the AI boom, which is forcing it to renegotiate contracts with customers and charge higher prices.
In his last quarterly call as president and CEO, Börje Ekholm said the company started to take longer-term structural actions, including raising prices “where appropriate,” first on new tenders and then price increases for current customers.
“Discussions to broaden price increases are ongoing, and we're also redesigning products, but all of these actions will help us mitigate longer-term effects from component inflation,” he said. “While we're not immune to these external factors, we're in a strong position strategically and operationally.”
Bullish on physical AI
Ekholm stressed the importance of AI in the industrial and physical world, where connectivity will be more important, especially when it comes to uplink and low latency. “Actually, this is what 5G was designed for,” he said. “I would say Ericsson today is well positioned to capture this next wave of AI-driven connectivity.”
He said he couldn’t point to the exact types of applications but the expectation is greater demand for uplink traffic in the drive for AI in the RAN. However, Ericsson continues to plan for a “flattish” RAN market.
“We're cautious,” he said. “The purchase decisions ultimately will be in the hands of our customers. But when they see the demand happening, I also think they will start to buy. But until then, let's continue to plan for a flattish market.”
When it comes to putting GPUs in radio units, Ekholm said Nvidia’s entry into the space is confirmation of the importance of AI in the RAN. But he said Ericsson remains agnostic from a hardware point of view; its RAN stack can run on x86, GPU or Ericsson’s purpose-built silicon.
“Where this market is going to end up is always a bit uncertain, but we see a demand for that compute in the radio going forward that we can offer with the purpose-built … Our RAN stack is agnostic, so we can be on what type of infrastructure ultimately wins. It's actually not an either/or question. We are simply saying, let's see where the market shapes up. Today, there are clear performance benefits in the purpose-built,” he said.
Data center vs. AI
Asked if Ericsson could have been more aggressive about going after the data center market, Ekholm said it’s a fair question but the company decided to be in a different part of the AI value chain.
“I think the next phase of AI is actually going to benefit our industry quite substantially,” he said.
“It's going to be anything from, of course, glasses. It's going to be humanoids. It's going to be robots – and when you start to see that, you will demand mobile connectivity, and you will start to demand high-performance mobile connectivity with solid indoor coverage and with high uplinks,” he said. “That's where we exactly have invested. So let's see where the physical AI develops in the future. That's when I think you'll see where we have a chance to outperform, and that's what we try to position ourselves for.”
Before launching into the earnings presentation, Ekholm introduced Per Narvinger, who will be succeeding him as CEO beginning in October. Narvinger is a nearly 30-year veteran at Ericsson, most recently heading the networks business.
Narvinger said Ekholm is handing over a company with a very strong market and portfolio position and he’s looking forward to meeting with customers to make sure they have a smooth transition.
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Ericsson names Per Narvinger CEO as Börje Ekholm steps down after 9-year run
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