Telecoms vendor Ericsson reported broadly disappointing financial results for its latest operating quarter.

The results were hit by a continued dearth in spending – especially in North America – and rapidly evolving geopolitical challenges, with company management also stating it does not expect to be a near-term beneficiary of the surging AI market.

The vendor’s overall sales were down 10 percent year-over-year during the first quarter, and down a more substantial 29 percent sequentially.

That year-over-year drop was spread across Network, Cloud Software and Services, and Enterprise units, with that last segment dropping a significant 30 percent, which CEO Börge Ekholm said during the earnings call was “clearly unacceptable.”

Ericsson was also hit by what Ekholm termed “a very large currency headwind” during the quarter, which the executive said “materially impacted every line of our financial statements.” Ericsson’s management did note that organic sales growth managed to post a 6 percent year-over-year increase.

Despite the broader downturn, Ericsson did continue to tout opportunities tied to defense and military segments. Ekholm said this remains a “more near-term” opportunity that the vendor expects to materialize over the next three years.

“I wished we would have started a few years earlier, but I think we're in pretty good shape to start to see these opportunities materialize over the next … maybe nine, 12, 18 months opportunity, and then they start to scale at two, three years,” Ekholm said.

Near-term challenges

In terms of more immediate challenges, Ericsson’s management specifically called out a downturn in sales from its North American operations, tying some of that to ongoing industry consolidation and a stabilization of spend that surged last year due to uncertainty over tariffs. Ekholm stated that it was “less exposed” today to the North American market “from a geographic mix perspective.”

“If we are a bit weak in North America but stronger in another market for a quarter, we can actually compensate that and keep a very healthy gross margin, and that, I think, lends to a better predictability of the total company, and actually for a healthier way of operating the company,” Ekholm explained. “While I think North America always will be important, from a mixed point of view, it will be less important going forward.”

Ekholm also said that the vendor is planning for the RAN market to remain “flat over the longer term.” Analysts have noted a similar path, though there are forecasts that telecom equipment spend could start to pick up beginning next year, tied to expected 6G investments.

Ericsson’s operational challenges could continue for the near term, which vendor management tied to broader geopolitical issues.

“Global uncertainty remains elevated given the broad new political and macroeconomic environment, including the global semiconductor situation,” CFO Lars Sandström said.

Ekholm did note that while the biggest area of focus is in managing component pricing, the vendor has made “sizeable” progress on “product substitution.” This is similar to what other vendors have attempted to do in dealing with component shortages.

“Through technology development, we deliver a product that performs the same but at the lower price, or a lower cost point,” Ekholm said. “That's … maybe the most important one that we've been able to do for quite some time, and I feel quite comfortable we'll get that with the next generation ASICs coming within the not-too-distant future.”

Ericsson not Nokia when it comes to AI, data centers

Ekholm also downplayed the vendor’s short-term ability to take advantage of the broader surge around AI and data center expansion.

“The next phase of AI we'll see AI being industrialized, shifting focus from current focus on data centers, large language models, rather to applications, devices, use cases,” Ekholm said. “This will require advanced mobile connectivity with capabilities such as ultra-low latency and high uplink. This puts us in the middle of the next phase of the AI era.”

Ekholm later added that “we're not going to see any sales directly from data center expansions right now.

“Our … exposure to AI is more going to come from the applications when you start to see inference play a very different role. So we may not be the front runner on the AI wave, but we are rather the longer term, I would say, it's one of our key drivers of traffic in the networks, and the connectivity will thus look different,” Ekholm said. “That's why I believe the exposure we have is going to come more from that traffic development from AI moving into implementations, but it's also going to come from AI in enterprises.”

Ericsson’s AI focus is significantly different from Nordic rival Nokia, which has pivoted its operations around the AI and data center market.