Ericsson grew third-quarter revenue 6% year-over-year to SEK 59.5 billion ($5.9 billion), yet its new CEO used the earnings call to dismantle a business unit and warn that rising component costs will keep building through the coming quarters.

Per Narvinger, making his debut as CEO on the call, said he stays "realistic" about the market. "The RAN market is broadly flat and component costs are increasing in the wake of the AI boom," he said.

Investors welcomed the numbers and the restructuring. Ericsson's share price jumped nearly 10% in morning trading.

What is changing inside Ericsson?

Narvinger's first structural move dissolves the unit housing enterprise wireless solutions and disperses its products across the company. Neutral host and private 5G offerings will move into the networks division, joining Ericsson's traditional radio access network products.

Wireless WAN solutions — the Cradlepoint assets Ericsson acquired in 2020 for $1.1 billion — will remain a standalone business under Yossi Cohen, head of market area Americas, with results still reported in the enterprise segment.

Åsa Tamsons, the current head of enterprise wireless solutions, will support the portfolio integration and then leave the company at the end of this year.

"The changes make sure we have stronger synergies on the R&D side ... and that we can continue on the growth path we've seen lately and come closer to the customers," Jenny Lindqvist, Ericsson's head of cloud software and services, told Light Reading. She noted Cradlepoint's placement under Cohen reflects where it has strong customer relationships.

How did the segments perform?

The quarter's growth came entirely from Ericsson's two largest segments. The breakdown:

• Networks sales grew 9%, with adjusted gross margin stable at 50.3% and adjusted EBITA margin up from 20.3% to 23.1% on "high sales and good cost control."
• Cloud software and services sales grew 3%.
• Enterprise sales declined 10%.

The shrinking enterprise result sharpens attention on Vonage, now branded the "global communications platform." Narvinger flagged it as the area with "more work to do." Christophe Van de Weyer, the new head of that platform and CEO of Vonage, carries the turnaround brief.

"We have also been very clear that we need to look on the cost side of the Vonage business," Narvinger said. "It is absolutely a priority to get to black numbers quicker on the enterprise segment."

Why are component costs the bigger story?

The commercial reality behind the reorganization is input cost inflation driven by semiconductor demand, which CFO Lars Sandström described in unusually direct terms.

"Global uncertainty remains elevated, given the broad geopolitical and macroeconomic environment, including the global semiconductor situation. We are not immune. The industry is entering a period of higher input costs, and the financial impact will continue to build up in the coming quarters," he said.

Ericsson has so far offset rising component costs through what it calls "tactical actions" such as upselling and product substitution. Those measures are no longer sufficient. The vendor has already started raising prices and plans further structural actions across its portfolio, supply chain and efficiency programs.

"We will not be immune to higher component costs, but protecting the value of our technology and the profitability of our mobile networks business remains our top priority," Narvinger said, adding that the company is "maintaining cost discipline" while prioritizing needed investments.

What happens to the regional structure?

From next year, Ericsson will combine its two smallest regional divisions. Market area Northeast Asia and market area Southeast Asia, Oceania and India merge into a single Asia-Pacific group.

Patrick Johansson, currently head of Europe, Middle East and Africa, will lead the new APAC group, and Ericsson will recruit his replacement. Chafic Nassif, head of Northeast Asia, and Andres Vicente, head of Southeast Asia, Oceania and India, both leave at the end of this year.

With a "leaner executive team," Narvinger said, "we can be faster and more agile in a very dynamic environment that we operate in."

The reorganization takes effect as Ericsson enters a flat RAN market with cost pressure that Sandström expects to build quarter by quarter — meaning price increases, portfolio cuts and the Vonage turnaround will define Narvinger's first year in charge.