Ericsson To Raise Telecom Equipment Prices As Ai Boom Drives Up Component Costs

Swedish telecom equipment maker Ericsson on Tuesday said the company is adjusting prices upwards for new tenders, renegotiating existing contracts, and engaging in discussions to broaden price increases as the AI boom is driving up component costs.“The external environment continues to be rather challenging as the AI boom is driving up component costs,” outgoing president and chief executive Börje Ekholm told analysts in an earnings call.Ericsson’s global leadership said the financial pressure from rising input costs will start building up gradually in the second half of the year, and into the next year. To manage the situation, the company is accelerating cost reductions, undertaking supply chain actions, and utilising product substitutions or selling additional products to offset the near-term impact.In the long term, Ericsson is working on redesigning products to balance component costs, which will take 6-9 months to materialise. The company will also introduce new products with adjusted pricing.“We’re also started to take longer-term structural actions, which of course, include raising prices where appropriate. First step is to adjust on new tenders, but we’re also implementing price increases with current customers,” Ekholm said. “All of these actions will help us mitigate longer-term effects from component inflation.”Ekholm said Ericosson’s contracts with telcos are long-term and typically do not have automatic pass-through for price inflation. Therefore the company has to actively renegotiate some of its contracts.Industry analysts said the India market will be negatively impacted by these price hikes, even more so due to a weakened rupee with telecom operators such as Vodafone Idea seeing a bigger impact due to its ongoing 5G expansion, while Reliance Jio and Bharti Airtel may see a limited impact.“Two main reasons why costs are rising are the ongoing chip and memory shortage impacting the supply chain, and a weakened rupee. The Indian market’s response to these price hikes will not be substantially different from other global markets,” an industry analyst told ET.Higher equipment costs are largely expected to weigh in on Vodafone Idea which is currently laying out a nation-wide 5G network. Reliance Jio and Bharti Airtel have already completed their rollout and are largely making incremental procurement.Queries sent to Reliance Jio, Vodafone Idea and Bharti Airtel remained unanswered at the time of going to press.“Jio and Airtel acquired most of its 5G equipment in 2022, and its current arrangement with Ericsson is mainly for operation and maintenance. Any new procurement is mostly for incremental additions, where a higher cost will not impact much,” an industry executive said.