By Geoffrey Smith
Investing.com -- Ericsson (ST:ERICb) (NASDAQ:ERIC) stock fell nearly 7% at the opening in Stockholm on Thursday, after a sharp rise in the cost of rolling out 5G telecom networks ate into its profit margins in the second quarter.
The Swedish maker of telecoms network equipment reported a 19% annual rise in net profit for the three months through June but said its gross margin declined, while margin developments overall were flattered by the timing of a large one-off sales contract.
The company highlighted "increased component and logistics costs, and proactive investments in supply chain resilience in Networks" as the reason for the decline in profitability. Ericsson is one of many companies in Europe and North America that have been forced to rethink their dependence on supply chains originating in China, due to logistics constraints arising from the pandemic and from the increasingly overt geopolitical competition between China and the West.
Ericsson's report was also notable for the lack of any fresh negative news from the ongoing U.S. investigation into alleged bribery and corruption in its dealings in Iraq, which has weighed heavily on its share price in recent months. The company said it was unable to give any fresh information on the issue, having warned in April that additional U.S. fines are likely owing to its lack of full disclosure to the authorities.
Ericsson's net sales rose 14% on the year, reflecting its ability to pass on most, if not all, the higher costs it incurred. It also said that it expected the current rollout of 5G services across the world to go on for longer than any previous comparable investment cycle.