Ericsson AB’s earnings beat analysts’ expectations in the first quarter as mobile operators ramped up spending on the Swedish telecom operator’s 5G equipment, but warned that tariffs would likely weigh on the business later in the year.

Adjusted earnings before interest and taxes were 6.21 billion Swedish kronor ($636 million) in the first quarter, the Stockholm-based company said in a statement on Tuesday. That compared to an average of analyst estimated compiled by Bloomberg of 5 billion. Adjusted gross margin also beat expectations, coming in at 48.5% for the quarter. Analysts had expected 45.9%.

The company said that it expected tariffs to have a negative impact on its networks business of about one percentage point, according to the statement. It forecast second-quarter adjusted gross margin of between 48% and 50%.

“In the evolving global trade landscape and macro volatility, we continue to focus on controlling what we can control and delivering to our customers,” Ericsson Chief Executive Officer Börje Ekholm said in the statement. “We are not immune, but we are resilient, with well diversified production close to the customer and the flexibility to adapt to changing conditions over time.”

Ericsson and its Nordic competitor Nokia Oyj have struggled for the past two years as telecom operators delayed 5G network upgrades. The market has seen bright spots, including India’s 5G rollout in 2022, but increasing geopolitical uncertainty and tariffs are weighing on the industry.

Ericsson shares fell as much as 15% in the wake of tariffs imposed by US President Donald Trump earlier this month. While North America accounted for about 30% of the company’s revenue in 2024, the company has been diversifying its supply chain to “mitigate potential disruptions,” its Ekholm said in the company’s 2024 annual report. This includes building a factory to produce 5G equipment in Texas to supply US customers.

“Ericsson has had US-based manufacturing capabilities since 2020, but even if it can quickly shift more production to these facilities, raw material and component costs are likely to face significant inflationary pressure,” said Bloomberg Intelligence analyst Kamila Wisniewska in a note ahead of earnings. “US customers may have only limited negotiating leverage given industrywide cost pressures, and this may prompt some to slow procurement to keep within spending budgets.”

Ericsson shares were down so far this year by about 18% to 73.60 kronor through Monday’s close in Stockholm.