Ericsson (NASDAQ: ERIC) shares surged over 14% Tuesday after the Swedish telecom giant reported stronger-than-expected third-quarter earnings.
The earnings signaled a significant financial rebound for the telecom powerhouse despite ongoing macroeconomic headwinds and a decline in overall sales.
The outperformance was primarily fueled by higher margins, aggressive cost efficiencies, and robust growth in its Cloud Software and Services division.
Also Read: Nokia And Ericsson Lose Ground In China After ‘Black Box’ Audits
Financial and Operational Highlights
Ericsson, which generates the bulk of its revenue from selling network infrastructure, software solutions, and professional services, reported that its diluted Earnings Per Share (EPS) came in at 3.33 Swedish Krona (35 cents), dramatically exceeding the 1.14 Swedish Krona reported year-over-year (Y/Y) and comfortably beating the analyst consensus estimate of 14 cents.
The company’s reported sales for the quarter were 56.2 billion Swedish Krona ($5.91 billion). Although this represented a 9% year-over-year (Y/Y) decline in local currency, it narrowly topped the consensus revenue estimate of $5.90 billion.
This revenue contraction was largely confined to certain segments and regions. Organic sales, which exclude the impact of acquisitions, divestments, and foreign currency fluctuations, declined by 2% for the period.
On a segmental basis, the Networks division, a core business for the company, saw sales fall by 11%, while the Enterprise segment experienced a steep 20% decline, a result primarily attributed to the divestment of iconectiv during the quarter.
However, this decline was partially offset by a 3% growth in Cloud Software and Services sales.
Within the Networks segment specifically, organic sales decreased by 5%, as growth across Europe, the Middle East, Africa, and Northeast Asia failed to offset steeper sales declines in other market areas.
Regionally, the consolidated decline was driven by a 15% decline in the Americas, a 1% decline in Europe, Middle East and Africa, and an 8% decline in South East Asia, Oceania and India. These drops were only partially alleviated by a 4% growth in North East Asia.
Profitability and Cash Position
The true strength of the quarter was found in profitability metrics, where cost discipline and strategic maneuvers yielded significant results.
The adjusted gross margin improved to 48.1% from 46.3% Y/Y, a gain driven by successful cost-reduction actions, operational efficiency, and increased IPR licensing revenues.
This translated down the income statement, where the adjusted EBIT margin improved to 27.5% from 11.9% Y/Y, and the adjusted EBITA margin improved to 28.1% from 12.6% a year ago, primarily benefiting from the capital gain generated by the divestment of iconectiv.
Despite the financial outperformance, Free cash flow before M&A was 6.6 billion Swedish Krona for the quarter, down from 12.9 billion Swedish Krona in the prior year period.
Nonetheless, the net cash position of the company strengthened considerably, standing at 51.9 billion Swedish Krona as of September 30, 2025, largely due to the proceeds from the iconectiv sale.
CEO Commentary and Outlook
Commenting on the results, CEO Börje Ekholm stated, “In Q3, we established margins at a new long-term level following strong operational execution over the past few years.”
He highlighted the company’s strategic progress, noting that the Cloud Software and Services [organic] sales grew 9%*, driven by robust growth in core networks.
Ekholm also emphasized that Ericsson’s Open RAN-ready portfolio features an AI-native, future-proof software architecture that is hardware-agnostic, integrates with third-party radios, and supports both Ericsson silicon and third-party CPUs/GPUs.
Looking ahead, the CEO expects Enterprise organic sales to stabilize in the fourth quarter, with the RAN market remaining broadly steady. The strong recurring cash flow and the iconectiv sale contributed to a healthy third-quarter cash position, providing scope for increased shareholder distributions, Ekholm concluded.
The company acknowledged that increased uncertainty remains on the outlook, citing the potential for further tariff changes and the broader macroeconomic environment.
The company forecasts that fourth-quarter sales growth for Networks will be broadly similar to the 3-year average seasonality.
Similarly, it expects quarterly Cloud Software and Services sales to resemble the 3-year average seasonality. Based on its current assessment of announced tariffs, the company anticipates a quarterly adjusted gross margin of 49% to 51% for Networks.
Market Context and Stock Performance
Despite the strong quarterly rally, Ericsson stock had previously gained only slightly more than 1% year-to-date, significantly lagging the NASDAQ Composite Index’s 18% returns during the same period, as the company continued to grapple with external pressures such as U.S. semiconductor sanctions and tariff policies.
Price Action: ERIC stock was trading higher by 14.44% to $9.350 premarket at last check Tuesday.
Read Next:
Photo via Shutterstock
© 2025 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
