Shares of LM Ericsson Telephone (ERIC.US) tumbled more than 11% at Tuesday's market open, now trading at $10.41. This decline extends a slide from early June highs, with the stock down approximately 22% from that peak.

The sharp drop follows the release of the company's second-quarter 2026 financial results. The telecom equipment maker reported a 6.1% year-on-year decrease in net sales to 52.69 billion Swedish kronor (approximately $5.61 billion), missing market expectations of 53.61 billion kronor. This decline was attributed to lower patent licensing revenue.

Despite the sales miss, the company's adjusted gross margin improved against the trend, rising to 48.4%, which surpassed the market's forecast of 47.9%. Adjusted EBITA came in at 6.9 billion kronor, exceeding the consensus estimate of 6.71 billion kronor. The adjusted EBITA margin of 13.1% also beat the expected 12.5%.

However, the company's net profit for the quarter fell by 12% year-on-year to 4.1 billion kronor.

Outgoing Chief Executive Börje Ekholm stated in a release that the second-quarter performance "fully demonstrates the strength of our product portfolio and strict execution."

Looking ahead to the third quarter, the company anticipates that sales growth in its Networks business will be higher than the average seasonal pattern observed over the past three years. The forecast for the adjusted gross margin is in the range of 48% to 50%.

Investor attention is also focused on cash flow, as free cash flow before mergers and acquisitions plummeted by 85% year-on-year this quarter to 400 million kronor.