Ericsson's second quarter of 2026, reported on July 14, looked weaker on the surface than it was underneath. Reported net sales fell 6% year over year to SEK 52.7 billion, but organic sales, which strip out currency effects and comparable-unit adjustments, declined just 1%, and the bulk of that dip came from lower intellectual property licensing revenues after a one-time patent settlement flattered the prior-year period. The more telling number was adjusted gross margin, which rose to 48.4% from 48.0%, and which management said was up roughly 2 percentage points once the prior-year settlement benefit is normalized out. At $10.16, with a market capitalization of about $33.2 billion and a trailing price-to-earnings multiple near 13x, the stock trades well below its 52-week high of $13.77, and the market appears to be paying the company almost nothing for the possibility that the mobile network spending cycle turns upward.
The reason the margin story matters so much is that Ericsson is operating through one of the weakest periods of radio access network spending in years. The radio access network, or RAN, is the layer of cell towers, base stations, and radios that connects phones to the network, and it is by far Ericsson's largest business. Operators in North America, historically the company's most profitable customer base, have been digesting their 5G buildouts rather than starting new ones. That revenue drought makes every point of gross margin earned through product mix, cost reduction, and software attachment genuinely impressive, because it is being earned the hard way rather than riding volume leverage.
The balance sheet backs up the operational story. Ericsson ended June with SEK 59.8 billion in net cash, returned SEK 8.2 billion to shareholders in the quarter through dividends and buybacks, and its dividend now yields roughly 3.06% at the current share price. Just as important, two patent agreements signed in July 2026, one with a top-10 smartphone vendor and one with a payment terminal vendor, lifted annualized recurring IPR licensing revenues to about SEK 13.5 billion, stabilizing a revenue stream that had been distorted by litigation settlements.
The counterargument is equally concrete. Free cash flow before mergers and acquisitions collapsed to SEK 0.4 billion in the quarter from SEK 2.6 billion a year earlier, first-half restructuring charges ran at SEK 4.4 billion against just SEK 0.9 billion in 2025, and the Enterprise segment posted an adjusted EBITA margin of -18.7%. Management itself warned that component cost inflation will build through the coming quarters and that Networks gross margin will face mix pressure in Q3 from a higher volume of rollout projects.
The forward question is whether Ericsson can hold its margin floor while revenue growth re-accelerates, either from late-cycle 5G activity, early 6G programs, or AI-driven demand on network APIs and enterprise connectivity. With forward earnings priced at about 16.3x, the stock is not expensive, but the multiple is high enough that investors are already assuming the cost program keeps earnings stable through the downturn. The next two quarters, covering the component-cost build and the Q3 guided margin dip, will show whether that assumption holds.