Ericsson Begins Narvinger's CEO Era with a Stable Quarter

Organic sales (growth adjusted to remove the impact of currency fluctuations and the impact of divested businesses) increased by 7% year-on-year (Nordea bank, Delårsrapport Q3 2026). Reported sales increased by 6% to SEK 59.5 billion. This is a genuine improvement. At first glance, the year-on-year profit figures appear poor, with adjusted EBITA down 36% to SEK 10.1 billion. However, upon closer inspection, it emerges that Q3 2025 included a one-time SEK 7.6 billion capital gain from the sale of the Iconectiv business. Strip that out, and underlying profitability actually improved compared with the previous year. The reverse comparison is flattering in reverse: Q3 2025 was artificially inflated, making Q3 2026 look weaker than it really is.

Reported net sales rose from SEK 56.2 billion a year ago to SEK 59.5 billion. Networks, the core radio access network equipment business, grew 9% to SEK 38.7 billion, its very strong quarter in some time. The adjusted EBITA margin for Networks increased to 23.1%, a year ago, a meaningful improvement driven by higher IPR licensing revenues (fees that other companies pay to use Ericsson's patented technology), a better product mix and continued cost discipline. Cloud Software and Services, the segment that has been undergoing rehabilitation, delivered an adjusted EBITA margin of 12.8%, continuing its steady recovery. Free cash flow before acquisitions came in at SEK 4.9 billion, a solid result. Net cash (the surplus of liquid assets minus borrowings) stood at SEK 60.7 billion at the end of the quarter, providing a strong financial cushion.

Inventories jumped sharply during the quarter, rising to SEK 35.4 billion from SEK 23.5 billion at the start of the year. That is a significant build-up, and the report explains it as a combination of project delivery timing and higher component prices. The second factor is more concerning than the first: Ericsson is paying more for the semiconductors and components it needs to build its products. Management indicated that higher component costs could create pressure on gross margins in 2027. That is an honest signal that 2027 margins could come under pressure, and it is the single most important risk to watch. The share buyback programme also continued at pace, with SEK 4.8 billion of repurchases in the quarter alone and SEK 8.1 billion year-to-date. The share buyback programme continued, which may indicate management's confidence in the company's long-term prospects, with ERIC B closing at SEK 97.10 on October 14.

According to Dell'Oro, the industry's primary research firm, the global RAN equipment market is expected to remain broadly stable in 2026. This means that Ericsson's growth will have to come from winning contracts, expanding into enterprise and network API services, or improving the profitability of its existing business, rather than from general market growth. The Americas region was the only area of weakness, with sales down 1%, partly reflecting the timing of Latin American rollout services. Geopolitical uncertainty and tariff risks also remain in the background. On the same day as this report, the company announced a simplification of its operating structure, which Narvinger framed as a move to improve speed and customer focus. This kind of internal reorganisation typically carries execution risk in the short term, even when the logic behind it is sound.

Management guided for Q4 Networks sales broadly in line with historical seasonality, typically meaning a sequential increase of around 17%, and an adjusted gross margin in the 49–51% range. This is the same margin corridor that has been guided for the past several quarters, suggesting that no major near-term deterioration is expected. Three issues deserve close attention. First, it will be important to see whether the component cost headwind management flagged by management translates into actual margin compression when Ericsson reports its full-year 2026 figures. Second, whether Cloud Software and Services can maintain its 12–13% adjusted EBITA margin trajectory as it moves into Q4. Third, the effect of the new operating structure affects execution in a quarter that is seasonally the most important quarter of the year from a seasonal perspective. Q3 showed Ericsson at its operational best. The more challenging question is whether this level of performance can be sustained into 2027, given rising input costs.