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Ericsson shares plunge after warning that memory chip costs will hit margins
The drop followed a move to lower Q3 Networks adjusted gross margin guidance to 48% to 50% and a sharp decline in free cash flow before M&A to SEK 0.4 billion from SEK 2.6 billion a year earlier.
Ericsson’s stock suffered its worst single-day reaction in nearly three years after the company warned that rising component costs, especially memory chips, will pressure future margins, Yahoo Finance reported. On July 14, Ericsson shares fell about 12%, reaching their lowest level since February. The company’s Q2 2026 results showed adjusted EPS of SEK 1.22, roughly $0.13, which was in line with expectations, while adjusted gross margin rose to 48.4% from the prior year.
Reported net sales declined 6% to SEK 52.7 billion, or about $5.62 billion, missing the SEK 53.71 billion forecast. The coverage said the market’s negative response focused more on forward guidance than on any deterioration in current execution, with organic sales excluding currency and one-offs essentially flat.
Ericsson also pointed to cash flow concerns, with free cash flow before M&A falling to SEK 0.4 billion from SEK 2.6 billion a year ago due to higher inventories built ahead of scheduled third-quarter deliveries. For Q3, management guided adjusted gross margin in Networks to 48% to 50%, citing a higher share of lower-margin network rollout projects and gradual component inflation over the second half of 2026 into 2027, according to Yahoo Finance.