Shares of Ericsson and IBM experienced significant declines this week following the release of their second-quarter financial results. Both telecommunications and technology giants reported earnings that fell short of expectations, with investors reacting to the high costs associated with the current artificial intelligence boom.
Ericsson reported organic sales for the quarter decreased by 1% compared to the same period last year. The company attributed this decline primarily to lower intellectual property licensing revenue, noting that the previous year’s quarter included a one-time boost from a partial licensing settlement that did not recur. Reported sales fell 6% to $5.4 billion, with currency fluctuations accounting for a portion of the gap.
Despite the overall decline, organic sales grew in three of the company’s four market areas.
The stock price for Ericsson dropped more than 12% to approximately $10.30. Investors focused on the company’s outlook regarding component costs, which have been inflated by the demand for chips and servers in AI data centers. Ericsson is currently renegotiating contracts and raising prices for new and existing customers.
CEO Börje Ekholm, who is stepping down in October, stated that the company is not immune to these external factors but remains strategically strong.
North American sales for Ericsson continued to decline, extending a retreat signaled in the first quarter. The company anticipates a flat market for radio access network equipment. Industry analysts noted that telecommunications providers are not yet ready to spend heavily on 5G standalone infrastructure upgrades, which limits immediate growth opportunities for Ericsson.
IBM faced an even steeper decline, with its stock plunging 25% to $217.07. This represented the company’s largest single-day loss since at least January 1968, according to Bloomberg data. The drop followed preliminary second-quarter results released in an investor letter a week ahead of the scheduled earnings call.
