Chip Shortage Squeezes Profit Margins, Ericsson Stock Price Plunges

BlockBeats News, July 14th. Swedish telecom equipment giant Ericsson saw a sharp drop in its stock price on the Stockholm market, marking the largest decrease in 18 months. Previously, the company had warned that its profit margin for this quarter would be under pressure due to the surge in component costs in its core network business.

Ericsson's stock price fell by as much as 10% on the Stockholm market. Outgoing CEO Börje Ekholm stated that the company's input costs are rising, partially driven by the skyrocketing demand for AI-driven storage chips, which has pushed up the prices of related components. Citigroup analysts pointed out that the market's biggest concern is that the profit margin pressure may persist until 2027.

Citigroup analyst Andrew Gardiner said: "We believe that the most significant challenge is the formation of component cost pressure. The short-term impact is not the main issue; what is more important is that this pressure may intensify further by 2027."

Ericsson's adjusted earnings before interest, taxes, depreciation, and amortization (EBITA) for the second quarter fell by 7% year-on-year to 6.88 billion Swedish Krona, slightly higher than Bloomberg's market expectation of 6.82 billion Swedish Krona. Due to weak telecom operator capital expenditure continuing to weigh on the entire telecom equipment industry, Ericsson has been continuously cutting costs in recent years. The company has already reduced about 5,000 employees by 2025 and plans to continue similar-scale personnel reductions this year.