Ericsson’s first quarter results, published on 17 April, look reasonable on the surface. Organic sales grew 6% year-on-year, led by the Networks segment. The adjusted EBITA margin in Networks came in at 50.4%, within the guided 49–51% range. Free cash flow before M&A was SEK 5.9 billion. The company announced a SEK 15 billion share buyback. The reported profit figure (down 73% to SEK 1.8 billion) is dominated by SEK 3.8 billion of restructuring charges from previously announced job cuts in Sweden, which management had already flagged. Strip those out and the underlying business is in reasonable shape.

What I’ve been thinking about since is a sentence from the analyst call.

CFO Lars Sandström, asked about the impact of rising semiconductor costs, said the headwind is coming but that “any significant impact would likely be seen in the second half of the year.” This points to a structural problem for the telecom equipment industry that the quarterly earnings cycle hasn’t yet fully surfaced.

The semiconductor problem that nobody in telecom caused

Ericsson and Nokia both buy large volumes of semiconductors (memory chips, RF components, baseband processors) to build the radio units and baseband equipment that operators deploy in their networks. They are broadly similar in type, though not identical, to the chips that go into AI servers, data centre infrastructure, and high-bandwidth memory stacks.

What has happened over the past eighteen months is that hyperscalers (Microsoft, Google, Amazon, Meta) have been spending at a scale that overwhelms almost any other demand source for advanced semiconductor capacity. AI infrastructure investment globally is running at something in the range of several hundred billion dollars annually. TSMC and the other major foundries are allocating capacity accordingly. Chipmakers like Micron have been redirecting production toward high-margin, high-bandwidth memory for AI data centres and away from lower-margin consumer and enterprise segments. SK Hynix and Samsung have raised prices for certain memory categories by roughly 20% for 2026 orders, according to reporting on the market earlier this year.

Ericsson and Nokia are not AI hyperscalers, and they cannot offer the volumes or the margins that data centre customers can. They are, in a meaningful sense, competing for semiconductor supply against their own customers’ biggest suppliers’ most important clients. And they are losing that competition. It’s not catastrophic but it’s meaningful, and shows up as rising input costs on the cost of goods sold (COGS) line.

CEO Börje Ekholm’s statement that the company is “facing increasing input costs, especially in semiconductors, caused in part by AI demand” is unusually direct for an earnings announcement.

Why the 50.4% margin matters more than the headline profit

The 73% decline in reported EBITA will get the attention, but it’s the wrong number to focus on. Reported EBITA includes SEK 3.8 billion of restructuring charges, costs that are real but largely known, flagged in advance, and expected to generate future savings through reduced headcount. They are not a signal about the underlying health of the business.

The Networks adjusted gross margin of 50.4% is the number that tells you whether Ericsson is managing the cost headwinds. For context: Ericsson spent the better part of 2022 and 2023 with Networks margins well below 40%, as North America investment surged and the company struggled to price its contracts to reflect actual costs. The recovery to the 49–51% guided range represents several years of deliberate work on product mix, software content, and pricing discipline.

The question now is whether that margin range holds through the second half of 2026, when Sandström says the semiconductor cost impact becomes more significant. The company’s answer (working with suppliers, passing costs through to customers, product substitution) is the right set of levers to pull. Whether they’re sufficient depends on how much capacity the foundries redirect toward AI customers, and how much pricing power Ericsson actually has with operators who are themselves under CAPEX pressure.

North America and the buyback

North American sales declined by mid-single digits in Q1. On the call, Ekholm said this trend is “likely indicative of the year.” North America was Ericsson’s most important growth driver in 2024, when network investments surged, and the company reported a 70% increase in Network sales to North American operators in Q4 of that year. The hangover from that investment cycle (AT&T and Verizon both under CAPEX discipline, T-Mobile having largely completed its Sprint network integration) was always coming. The question was timing and duration. Ekholm’s framing suggests it runs through the year.

Against that backdrop, the SEK 15 billion share buyback is interesting. This is Ericsson’s first buyback programme. Launching it in a quarter where reported profit fell 73%, North America is declining, and semiconductor costs are rising, is deliberate messaging: management believes the restructuring charges are temporary, the underlying cash generation is real, and the market is undervaluing the business. Free cash flow before M&A was SEK 5.9 billion in Q1 alone. The net cash position stood at SEK 38.6 billion at the end of Q1 2025, a position substantially rebuilt from the low of the 2022–2023 cycle. Here, the buyback is a credibility statement, as much as a capital allocation decision.

I find myself roughly agreeing with that assessment on the underlying business, while remaining uncertain about the semiconductor trajectory. The structural position (roughly 39% of the global RAN market outside China, a geography that has no credible alternative at scale given the Huawei restrictions) is genuinely strong. The near-term cost environment is genuinely uncertain in a way that depends on variables Ericsson cannot control: how much AI infrastructure investment the hyperscalers sustain, how TSMC and the memory manufacturers allocate capacity, and whether operator CAPEX recovers in North America before H2 pressure materialises.

Where I’d be watching

Three things.

First, the Q2 Networks adjusted gross margin. The guided 49–51% range for Q2 was reaffirmed on the call. If it comes in below 49%, it signals the semiconductor cost pass-through is harder than management indicated, and the H2 picture gets more uncertain.

Second, Nokia’s Q1 results, due 23 April. Nokia faces the same semiconductor cost environment and a similar North America exposure. If Nokia signals a more aggressive cost impact than Ericsson did, it tells you something about whether Ericsson’s mitigation narrative is realistic or optimistic.

Third, any public commentary from AT&T or Verizon on their CAPEX plans for the second half of 2026. North America is the swing factor for both Western vendors. A recovery there absorbs a lot of the semiconductor cost headwind through volume. A continued pullback makes the H2 margin defence considerably harder.

Ekholm said “development seen in Q1 is likely indicative of the trend for the year”. So watch whether that assessment holds when operators publish their own mid-year guidance updates.

There is a number I keep coming back to when I read the coverage of this deal, and it’s not the €20.35 billion enterprise value that the Bouygues-Iliad-Orange consortium put on Altice’s French operations. It’s a different number: 1.05 million. That’s how many mobile subscribers SFR lost in 2024 alone, with a further 260,000 fixed-line customers departing in the same period, taking total customer losses for the year to around 1.3 million. All of this is drawn from Altice France’s own annual results, published 15 April 2025. Its revenues fell 5.6% over the full year, on a reported basis, per the same document.

By the time this consortium bid arrived, SFR was already a business in serious commercial distress, carrying what had been a €24 billion debt pile accumulated during the low-rate years, attempting to restructure through a deal with creditors announced in February 2025 and completed on 1 October 2025, a transaction that handed 45% of the equity to lenders and put former Vodafone CEO Nick Read on the board as an independent non-executive director. Drahi had already sold the data centres, the media assets, the adtech business, and a chunk of his BT stake. The SFR sale isn’t the culmination of a strategic consolidation trend.

I don’t say this to be glib about a genuinely significant transaction. Going from 4 to 3 operators in a market the size of France is a real structural change with real consequences. But I think the framing matters, because a distress sale and a strategic merger are different things: they produce different outcomes for customers, for regulators, and for the operators doing the buying. The press release of this deal has been doing a lot of work to make one look like the other.

What the consortium is actually buying

The deal structure tells you a lot about who wants what out of this transaction and why the three buyers landed on these particular percentages.

Bouygues is paying 42% of the total price (the largest share) and in return gets SFR’s B2B unit, its business customers, and the mobile network in less densely populated areas of France. Iliad pays 31%. Orange, the largest operator in France, pays just 27% and takes the smallest piece.

Did you notice? Orange, which has the most to gain from removing a competitor and the deepest pockets to pay for it, is the junior partner in this consortium. That’s a deliberate regulatory choice, not an accidental outcome. A transaction in which France Télécom’s successor entity acquires a dominant chunk of the second-largest operator in France would face a very different regulatory conversation than the structure they’ve actually put together. By minimising Orange’s share and letting Bouygues anchor the deal, the consortium is obviously trying to shape the remedy discussion before it begins.

Bouygues taking the B2B unit is the most commercially interesting piece of the carve-up, as Enterprise services are where European operators have been trying to find margin for a decade, and Bouygues has been the most credible challenger in that segment. Adding SFR’s corporate customer base changes their competitive position in Enterprise materially, more than it changes their consumer position.

What’s excluded from the deal is also revealing. XP Fibre, SFR’s wholesale fibre infrastructure business, reported to cover around seven million sockets across France, is not in the transaction. UltraEdge, the data centre vehicle, was already sold to Morgan Stanley Infrastructure Partners in May 2024. The overseas operations stay with Altice. What the consortium is buying is essentially SFR’s customer relationships, its spectrum, and its terrestrial mobile network. The infrastructure assets are either already gone or being kept separate. That’s a useful reminder that in European telecom deals, the most contested question is often not which operator buys which customers, but who ends up owning the underlying infrastructure those customers sit on.

The regulatory question everyone is pretending is simpler than it is

Most of the coverage has treated regulatory approval as a near-certainty, pointing to the broader European trend. The CMA approved Vodafone-Three in late 2024. The European Commission’s 2024 white paper acknowledged the investment case for consolidation. Orange-MasMovil closed in Spain. The direction of travel in Brussels is clearer than it has been for a decade. That’s all true, but it’s also mostly irrelevant to this specific deal.

Altice France’s revenue sits below the EU Merger Regulation’s notification thresholds. This isn’t a Brussels case. It’s reviewed by the Autorité de la concurrence (France’s national competition authority), which operates with its own analytical framework, its own political context, and no recent track record of approving four-to-three mobile mergers. The CMA’s evolution doesn’t bind the Autorité. The Commission’s white paper doesn’t bind the Autorité. What Brussels has been thinking is interesting, but irrelevant to this deal.

There’s also a structural problem with the remedies discussion that I haven’t seen addressed anywhere in the coverage. A standard horizontal merger (operator A buys operator B) produces a standard remedy question: what assets does the merged entity divest to preserve competitive dynamics? In this transaction, three operators are simultaneously carving up a fourth. The fourth player disappears entirely. There is no obvious divestiture logic that reconstitutes competition, because you’d be asking the buyers to sell back pieces of what they just bought. The Autorité is going to have to think creatively about what conditions it imposes (on spectrum sharing, wholesale access, MVNO pricing), and creative regulators in France don’t always arrive where the deal architects expected.

My instinct is that this gets approved, but the path is more uncertain and more time-consuming than the press release implies, and the exclusivity deadline of May 15th tells you something about the pressure Drahi is under to lock things in before that uncertainty has time to crystallise.

Where I’d be watching

Three things specifically.

First, the Autorité de la concurrence’s timeline and the conditions it attaches, in particular whether it demands any form of wholesale access obligation or MVNO pricing commitment that would limit the revenue upside the consortium is counting on. If the conditions are onerous, the economics of the deal change materially for Bouygues, which is carrying the largest share of the price.

Second, what happens to SFR’s subscriber base during the approval process. The exclusivity runs to May 15th and regulatory review in France typically takes several months minimum. Every quarter of continued subscriber losses between now and closing reduces the value of what the consortium is actually acquiring, and there’s no obvious mechanism in the deal structure to adjust the price downward if the haemorrhage continues.

Third, XP Fibre. The wholesale fibre business wasn’t included in this deal, and Altice still needs to find a buyer or a structure for it. How that resolves will tell you something important about the future of open-access fibre infrastructure in France, whether it ends up in infrastructure fund hands, folded into one of the operators, or left in a capital structure that can’t sustain the investment the network needs. That’s the story I’ll be watching once this one closes.