Ericsson's Turnaround Gains Momentum: Why 5G/6G Leadership and Margin Gains Make ERIC a Contrarian Tech Play

The telecom infrastructure sector faces headwinds: macroeconomic uncertainty, supply chain volatility, and geopolitical fragmentation. Amid this, Ericsson (ERIC) has emerged as a standout performer, leveraging operational discipline and strategic foresight to drive margin expansion and market share gains. Its Q2 2025 results, which saw an adjusted EBITA margin hit a three-year high of 13.2%, underscore a turning point in its turnaround narrative. For investors seeking resilience in tech, Ericsson's combination of near-term catalysts—North American growth, scalable IPR licensing, and supply chain agility—positions it as a contrarian play with underappreciated upside.

Margin Expansion: Proof of Operational Turnaround

Ericsson's Q2 2025 earnings revealed a stark contrast to its peers. The company's adjusted EBITA margin surged to 13.2%, up from 6.8% in the prior-year period, driven by cost reductions, supply chain efficiencies, and a 23% year-over-year jump in IPR licensing revenue to SEK 4.9 billion. This outperformed Nokia's Q2 2025 results, which saw a 3% year-over-year decline in net sales despite margin improvements in its optical and cloud segments. Meanwhile, Huawei's geopolitical headwinds—sanctions and fragmented global supply chains—have limited its ability to capitalize on 5G/6G tailwinds.

Ericsson's margin trajectory now aligns with its 2026 target of ≥13%, signaling sustainable execution. This contrasts with Nokia's cautious outlook, where one-off charges and tariff impacts have complicated profit targets.

North American Growth: A Key Engine of Resilience

While Asian markets like India and Southeast Asia faltered—due to delayed investments and regulatory uncertainty—Ericsson's North American business delivered a 10% organic sales growth, fueled by 5G rollouts and IPR licensing wins. The Americas region now accounts for 35% of Ericsson's total sales, up from 32% in 2024. Key wins with U.S. carriers, including expanded 5G contracts, highlight the region's strategic importance.

In contrast, Nokia's Q2 2025 revenue missed expectations, with its North American performance overshadowed by Asia-Pacific declines. Ericsson's focus on high-margin software and services (Cloud Software & Services margin rose to 10%) further distinguishes it from peers, where hardware-heavy portfolios remain vulnerable to pricing pressures.

IPR Licensing: A Scalable Cash Flow Lever

Ericsson's IPR revenue, a critical driver of margin expansion, is underappreciated by the market. The company's patent portfolio, covering foundational 5G/6G technologies, generated SEK 19.5 billion in cumulative licensing revenue since 2021, with room to grow as global 5G adoption expands. Management noted “significant upside” from pending negotiations with Asian and European telecoms, suggesting IPR could contribute ~20% of total sales by 2026.

This contrasts with Nokia's slower IPR progress, where licensing revenue remains a smaller fraction of total sales. Huawei, though technically strong, faces restrictions that limit its ability to monetize patents globally.

Supply Chain Agility: A Competitive Moat

Ericsson's ability to navigate semiconductor shortages and tariffs sets it apart. The company's multi-source supplier strategy and localized manufacturing in key regions—such as its U.S.-based 5G core equipment—have reduced dependency on Chinese vendors. This contrasts with Nokia, which faces tariff-related headwinds, and Huawei, whose supply chain is increasingly fragmented.

Ericsson's gross margin expansion to 48% in Q2 2025 reflects this agility, enabling it to outperform peers in cost-sensitive markets.

Valuation: A Contrarian Opportunity in Tech

Ericsson trades at 15.3x P/E, a discount to its five-year average of 22x, despite improving cash flow and IPR tailwinds. The market overlooks two critical factors:
1. Near-term stability: Ericsson's Q3 2025 guidance projects a gross margin of 48–50%, supported by ongoing cost savings and IPR growth.
2. Long-term licensing upside: The global 5G market is expected to reach $240 billion by 2030, with Ericsson's patents positioned to capture a growing share.

In contrast, Nokia's valuation at 12x P/E reflects its execution risks, while Huawei's geopolitical constraints limit its public market appeal.

Investment Thesis

Ericsson is a rare blend of operational turnaround and structural growth in a fractured tech sector. Its margin gains, North American dominance, and scalable IPR licensing create a risk-adjusted return profile superior to peers. With a P/E below its peers and a dividend yield of 2.5%, ERIC offers both growth and income.

Recommendation: Buy Ericsson on dips below SEK 130, with a 12-month price target of SEK 160 (15% upside). The stock's low valuation and high IPR leverage make it a compelling contrarian bet in a sector rife with volatility.

Disclosure: This analysis is for informational purposes only and does not constitute financial advice. Investors should conduct their own research.