LM Ericsson Telephone (ERIC) shares plummeted 8.28% in the pre-market session, driven by a second-quarter earnings report that missed market expectations and warnings of rising component costs and margin pressure.

The telecommunications equipment maker reported a 6.1% year-over-year decline in net sales to SEK 52.69 billion, falling short of analyst estimates. Adjusted EBIT also missed expectations, while earnings per share declined 11% compared to the same period last year. The company's free cash flow before M&A collapsed by 85%, adding to investor concerns about financial health.

Management cited multiple headwinds including AI-driven demand for semiconductors that is crowding out supply and pushing up costs for memory, ASICs, and other components. Ericsson also warned of weaker profitability in its key networks business, guiding for a third-quarter adjusted gross margin of 48% to 50%, down from 50.4% in Q2. The company flagged a slowdown in the North American market as 5G investment peaks and announced further restructuring and layoffs for the remainder of the year.