Ericsson 2Q26 revenue below expectations; Goldman Sachs maintains Sell rating

Overview

This report is Goldman Sachs' quick take on Ericsson's 2Q26 results. It notes that 2Q26 revenue was below market consensus, while group EBITA was above consensus due to lower operating expenses than expected. Goldman Sachs' core view is negative: revenue remains weighed down by Networks and regional demand, component cost inflation could pressure gross margins in 4Q26, and implied 3Q26 EBITA could be materially below consensus. Goldman Sachs therefore maintains its Sell rating.

Core views

Goldman Sachs believes the initial market reaction may be negative, due to weaker-than-expected 2Q26 revenue, continued weakness in the Americas, implied 3Q26 EBITA below consensus, and potential gross margin pressure from component cost inflation. Although the company partially offsets these factors through cost controls, pricing actions, and higher annualized IPR revenue, these measures are insufficient to alter Goldman Sachs' view that full-year EBITA consensus estimates face a risk of being cut by low- to mid-single-digit percentages.

Analysis framework

The report uses a results preview framework, comparing actual 2Q26 revenue, EBITA, segment performance, regional demand, and gross margin guidance with Infront consensus. It also uses the company's guidance on 3Q26 Networks sales seasonality and gross margins to derive the potential downside to 3Q26 and full-year EBITA. For valuation, Goldman Sachs derives a 12-month target price based on a 9x post-restructuring EV/EBITDA multiple.

Methodology notes

• Results comparisonActual results versus Infront consensus

  Compares 2Q26 revenue, EBITA, free cash flow, segment revenue, and gross margins with market consensus to assess earnings quality and the direction of expectation revisions.

  Ericsson's 2Q26 revenue was 2% below consensus, group EBITA was 3% above consensus, but FCF before M&A was SEK 0.4bn, below the consensus of SEK 3.2bn.

• Valuation methodsEV/EBITDA multiple approach

  Estimates the 12-month target price using a post-restructuring EV/EBITDA multiple.

  Goldman Sachs applies a 9x EV/EBITDA post-restructuring multiple to Ericsson, resulting in a target price of Skr92.00 for ERICb.ST and $9.50 for the ADR.

• Style factorsGS Factor Profile

  Goldman Sachs compares individual stocks with the market and industry peers across four attributes: Growth, Financial Returns, Multiple, and Integrated.

  Growth is based on forward revenue, EBITDA, and EPS growth; Financial Returns is based on ROE, ROCE, and CROCI; Multiple is based on valuation metrics including P/E, P/B, P/D, EV/EBITDA, and EV/FCF.

• M&A frameworkM&A Rank

  Goldman Sachs assesses the probability of a company becoming an acquisition target on a scale from 1 to 3.

  1 represents a high probability of 30%-50%, 2 represents a medium probability of 15%-30%, and 3 represents a low probability of 0%-15%; M&A factors may be incorporated into the target price when the ranking is 1 or 2.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Ericsson (ERICb.ST)

  Research subject; Goldman Sachs maintains a Sell rating

  Strengths

  2Q26 group EBITA was 3% above consensus; Networks gross margin remained at 50.4%; Cloud Software and Services revenue and EBITA were better than consensus; the company continues to reduce costs and implement pricing measures.

  Weaknesses

  2Q26 revenue was 2% below consensus; Networks sales declined year on year; sales fell in the Americas and Europe, Middle East and Africa; FCF before M&A was materially below consensus.

  Comparison

  The stock underperformed broader EU Tech by 2% and 14% over the past 1 and 3 months, respectively, but its absolute year-to-date gain is 22%.

  Risks

  3Q26 EBITA below consensus, 4Q26 gross margin pressure from component cost inflation, and weak North American wireless RAN demand.

• Ericsson ADR (ERIC)

  ADR security of the same company; target price and downside listed separately

  Strengths

  Shares the same fundamental and business improvement factors as ERICb.ST.

  Weaknesses

  The ADR target price of $9.50 is below the current price of $11.72, implying 18.9% downside.

  Comparison

  Represents the same fundamental view as the Swedish-listed ERICb.ST shares.

  Risks

  Currency fluctuations may affect the ADR price and investment returns.

• Nokia

  Peer read-across subject

  Strengths

  Goldman Sachs notes that Nokia has lower exposure to North American wireless demand than Ericsson.

  Weaknesses

  Declining Networks sales for Ericsson in North America could create a negative industry read-across for Nokia.

  Comparison

  Nokia and Ericsson operate in the same communications equipment competitive landscape, but have different regional and business exposures.

  Risks

  If wireless RAN demand remains weak, peer valuations and order expectations could be affected.

Key data

• 2Q26 group revenue2% below Infront consensus; down 1% year on year at constant exchange ratesPrimarily affected by the high base created by one-off IPR licensing revenue in the prior year.
• 2Q26 group EBITA3% above consensusLower gross profit was offset by lower operating expenses.
• Networks revenueDown 4% year on year at constant exchange ratesPrimarily affected by lower IPR licensing revenue; underlying organic sales were broadly stable year on year excluding IPR.
• 2Q26 adjusted Networks gross margin50.4%Supported by favorable product mix and ongoing cost reductions, partially offset by lower IPR licensing revenue.
• 3Q26 Networks gross margin guidance48%-50%Market consensus is 49.7%; the company expects higher network deployment volumes to create pressure.
• Potential 3Q26 EBITA deviationUp to approximately 10% below consensusDepends on assumptions regarding 3Q Networks seasonality and consensus estimates for other segments.
• FCF before M&ASEK 0.4bnBelow the consensus of SEK 3.2bn and down both sequentially and year on year.
• 12-month target priceERICb.ST Skr92.00; ERIC ADR $9.50Implies 18.4% downside from the current price of Skr112.75 and 18.9% downside from the ADR current price of $11.72.

Impact & implications

The report's investment implications for Ericsson are negative: the stock may face short-term pressure from implied 3Q26 EBITA below consensus, weak demand in the Americas, and component cost pressures. In the medium term, investors should monitor whether the company can offset cost inflation through internal cost reductions and pricing actions. Regarding peers, Goldman Sachs believes that declining Networks sales in North America could have a negative read-across for Nokia, while also noting that Nokia has lower exposure to North American wireless demand.

Risks

• Component cost inflation could pressure gross margins in 4Q26.
• Weak North American wireless RAN demand could lead to downward revisions to revenue and EBITA consensus estimates.
• With 3Q26 Networks gross margin guidance of 48%-50%, higher network deployment volumes could put pressure on margins.
• Better-than-expected progress in the Cloud Software and Services restructuring could pose an upside risk to the Sell view.
• Market share opportunities arising from restricted Chinese vendors exceeding expectations could pose a risk to the negative view.
• If profitability in India rebounds faster than expected after the initial ramp-up, it could support earnings.

What to watch

• Demand in the wireless RAN market, particularly trends in North America.
• The magnitude of component cost inflation and Ericsson's ability to offset it through internal measures and pricing actions.
• Networks gross margin trends over the coming quarters.
• Whether 3Q26 Networks sales seasonality is higher than the three-year average trend.
• Demand trends in the Enterprise business and whether increased enterprise AI adoption generates tangible benefits.
• Whether full-year EBITA consensus estimates are cut by low- to mid-single-digit percentages.