Ericsson announces weak revenue despite strong profit in Q2 2025

In Q2 2025, Ericsson, a telecommunications company based in Sweden, reported its financial results, revealing a significant turnaround from prior year losses. The company achieved an adjusted operating profit of SEK 7.0 billion (approximately $728 million), surpassing consensus estimates of SEK 6.1 billion. This performance indicated a robust recovery from a substantial SEK 11.9 billion loss the previous year. Ericsson's gross margin increased to 47.5%, along with an EBITDA margin reaching a three-year high of 13.2%, reflecting improvements in operational efficiency. However, despite these positive trends, Ericsson faced challenges on the revenue front, as its total revenue declined by 6% year-over-year to SEK 56.1 billion. This downturn can largely be attributed to a SEK 4.7 billion headwind caused by currency fluctuations, which affected sales figures significantly. Organic growth stabilized at just 2%, primarily driven by modest gains in North America, while the company experienced major reductions in spending from telecom operators in India and Southeast Asia, particularly in the wake of a recent 5G rollout where companies like Reliance Jio and Bharti Airtel reevaluated their expenditures. Adding further pressure on Ericsson, tariffs have continued to squeeze its profit margins, creating an environment of uncertainty for future growth. The company's management has voiced concerns that these tariffs could intensify, thereby complicating their operational strategies. Analysts noted that the forecasts for Q3 fell short of existing expectations, with seasonal patterns projected to remain flat, reflecting no increase in demand. For Q3 2025, the company predicts that Networks sales will likely be lower than typical seasonal patterns while anticipating that Cloud Software and Services will align with historical trends. From a valuation standpoint, Ericsson's stock is currently trading at a trailing P/E of around 14.5x, which is considerably lower than the S&P 500’s average of 26.9x. Its forward P/E stands at about 15–16x, slightly above the 10-year average of roughly 13x but still relatively affordable when compared to broader market benchmarks. The price-to-sales ratio remains at 1.0x, consistent with historical ranges of 0.9x to 1.2x, and the price-to-free cash flow stands at merely 0.6. While the slight premium on forward earnings indicates potential expectations for margin growth, the overall valuation suggests that the stock may still represent a good investment opportunity, contingent on overcoming several short-term challenges related to sluggish growth and tariff pressures in the markets.