Ericsson's (ERIC) revenue growth and profit margins may weaken as telecommunications operators remain "conservative" on network spending and component costs rise, Morgan Stanley said Tuesday in a report.

Morgan Stanley cut its 2027 operating profit estimate by 5% and its outlook for earnings per share by 6% on margin concerns. It downgraded Ericsson to underweight from equal weight and cut its price target on the American depositary receipts to $9 from $11.

The mobile radio access network market is expected to remain "flat going into 2027," the report said. Ericsson's network revenue in the profitable North America region fell 5% in Q2 from a year earlier "after several years of strong growth," Morgan Stanley said.

Ericsson forecast Q3 networks gross margins of 48% to 50%, down about 100 basis points from Q2 as some projects move into lower-margin rollout phases, the report said. Higher semiconductor costs may add further pressure in 2027, Morgan Stanley said.

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