Ericsson ( ERICY) slumped 3% early Friday after the Swedish telecom gear company's profit margins continued to be weighed down by a recent acquisition.

The Stockholm-based company made 5.7 billion kronor ($781 million) in the second quarter, down from 5.8 billion a year earlier. Sales rose 15% from a year ago to 44.2 billion kronor ($6.05 billion).

But operating margin fell to 18.7% from 21.6% a year earlier as Ericsson struggles to integrate its big Marconi buy. Adjusting for the acquisition of Marconi intangibles, latest-quarter operating margin was 19.6%. Gross margin slipped to 42% from 45.9% last year.

"In the changing industry environment we have leveraged our scale, technology leadership and global presence to advance our leading position in mobile systems as well as in services," says CEO Carl-Henric Svanberg. "We have secured a large number of key contracts during the quarter, adding to our strong business momentum. With the Marconi assets as a cornerstone, we are also building a leading position in next-generation converged networks.

"The ongoing consolidation in our industry is a natural process, driven by the need for critical mass in R&D, marketing and supply," he adds. "As market leader, our strategy based on organic growth and bolt-on acquisitions remains. With our scale advantage and an organization focused on innovation and operational excellence, we are well positioned to continue to win market share. Our ability to achieve a healthy balance between long-term growth and short-term profitability will be key to success."

Early Friday, shares fell $1.13 to $30.83.