Core Viewpoint - Morgan Stanley maintains a "neutral" rating on Ericsson (ERIC.US) ahead of its Q3 2025 earnings report, with a target price of 80.00 SEK, citing a mixed market environment characterized by both softness and resilience in business operations [1] Group 1: Q3 Performance Expectations - The overall market growth remains weak, with telecom customers strictly controlling capital expenditures, which is a major pressure on revenue growth [1] - North America, accounting for 30-40% of Ericsson's revenue, faces high base comparison pressure, leading to a projected Q3 revenue decline of 9.2% year-on-year to 56.108 billion SEK [1] - Mobile network business is expected to be a key highlight, with management guiding a gross margin of 48%-50%, up from 47%-48% in Q2, potentially serving as a positive surprise for Q3 performance [1] Group 2: Impact of Iconectiv Sale - The sale of iconectiv, completed in mid-August 2025, will contribute approximately 9.9 billion SEK in revenue and 7.6 billion SEK in one-time EBIT profit, impacting core profitability metrics without separating from underlying business trends [2] - Q3 EBITA is expected to reach 13.8 billion SEK, significantly higher than Q2's 7.4 billion SEK, with net cash projected to increase to 4.5 billion SEK [2] - Management has not committed to special dividends or stock buybacks, postponing discussions on cash return plans until the full-year 2026 financial report [2] Group 3: Financial Model Adjustments - The financial model has been adjusted due to the sale of iconectiv, which previously contributed about 4 billion SEK in annual revenue and 2 billion SEK in EBIT [3] - For 2025, revenue is expected to be 23.3 billion SEK, with EBIT projected at 3 billion SEK and EPS at 7.10 SEK, a significant improvement from 2024 [3] - Starting in 2026, revenue and EBIT are expected to decline in the mid-single digits due to the exclusion of iconectiv from consolidated financials, with EPS projected at 5.94 SEK [3] Group 4: Valuation and Scenario Analysis - Morgan Stanley uses a 2026 expected EV/EBIT multiple of 8x to estimate the target price, reflecting a stable 5G capex environment similar to the 4G maturity phase [4] - Three scenarios are established: a bull case with a target price of 95.00 SEK if the 5G cycle extends, a base case of 80.00 SEK assuming market stabilization, and a bear case of 58.00 SEK if telecom capex declines sharply [4]