HMS Networks rides the data-center wave, but memory costs loom
HMS Networks (publ) delivered a quarter that is hard to fault: organic sales growth of 12%, an EBITDA margin of 26.8% (well above its 25% target), and a record operating cash flow of SEK 334 million. Yet beneath the sunny headline numbers, the company is also telling investors a more nuanced story – one of a business squarely riding a global data-center and semiconductor wave, while preparing for the inevitable cost inflation that same wave brings.
A broad-based quarter with few blemishes
The tone from the CEO, Staffan Dahlström, was exuberant: “Sun is also shining in our numbers. We are very happy to present this quarter two report.” The growth is indeed broad – APAC orders surged 35%, EMEA 15% – and the semiconductor OEM segment is “starting to see a lot of good orders.” CFO Joakim Nideborn highlighted that the Industrial & Technology (I&T) division has now posted organic order growth of “about 20% for four straight quarters.” This is not a one-off; it is a sustained acceleration.
The margin story is equally impressive. Gross margin came in at 63.8%, above the 61.8% in the prior-year quarter, helped by a favorable product mix and a more stable tariff environment. “We have not yet gotten any tariffs back. That is something we are working on at the moment.” — Joakim Nideborn, Chief Financial Officer · 2026-07-14 The company also benefited from a small divestment gain, but the core operational leverage is clear. The record cash flow – “by far a record with SEK 334 million” – allowed the company to trim its net debt/EBITDA to 1.74x and continue M&A dialogues.
Riding the global data-center and AI wave
HMS is increasingly an indirect beneficiary of the AI infrastructure buildout. The company explicitly names data center automation as the main growth driver, touching three pillars: industrial automation customers delivering cooling/power equipment, system integrators buying gateway switches for protocol conversion, and semiconductor machine builders. “All these three different pillars are indirect to the data centers, but we see quite clearly that they are driven by the data center momentum,” said Dahlström. This aligns with the market-wide theme – the global keyword trajectory for 20263 is dominated by “data center AI” and “semiconductor,” and other reporters like SMOP.OL also flagged “AI data center” demand. HMS is riding a wave, not manufacturing one.
Yet the company is careful to note that its role is not in the compute itself – it supplies standard products for the automation and connectivity inside these facilities. This positioning explains the resilience of demand, but it also means HMS is exposed to the same supply-chain constraints that are now gripping the industry.
A strategic bet on embedded AI
The most company-specific development is the strategic minority investment in Ekkono, a Swedish AI startup specializing in embedded machine learning – a move that goes beyond the data-center narrative. “This is not large language models that are cloud connected. This is embedded machine learning,” Dahlström explained. The company plans to embed Ekkono’s technology into its own products, allowing OEM customers to run lightweight AI functionality at the edge. This is a genuine strategic pivot, marking HMS’s first foray into on-device intelligence and broadening its addressable technology stack.
At the same time, the company is bracing for a margin squeeze. “We see now continued longer lead times, especially on memories, but also some other components. Also price increases are starting to take off.” — Joakim Nideborn, Chief Financial Officer · 2026-07-14 Management expects to rely on high-priced memory in the second half, likely shaving a percentage point or two off gross margin. CFO Nideborn was candid: “I think we can expect a slightly lower gross margin for the second half.”
If we look back two years ago… We released our new strategy at the Capital Markets Day last fall, and we're seeing good progress. I must say I'm very happy to see that things are falling into the right places and the organic development is going really well.
That progress is real, but so is the cautionary note. The company’s own keyword trajectory shows memory and lead times rising sharply, and the global tape is already pricing in the same supply tightness – memory makers and chip equipment names are among the top advancers. HMS’s warning is thus a signal for the whole sector.
Outlook: sustainable growth, but watch the cost line
HMS enters the second half with order momentum, a stronger balance sheet, and a new strategic arrow in the form of embedded AI. The risk is that the very forces driving demand – memory and component shortages – will pressure margins. “We will, of course, monitor the situation and maybe do adjustments if it's needed,” said Nideborn. For now, the growth story is intact, and the company is confident enough to keep investing in R&D and new product launches.
For an investor, the question is whether the margin dip is temporary or structural. HMS has demonstrated it can expand margins while growing – the question is whether it can do so through a memory cycle. The answer will likely be positive, but the near-term path is bumpy.