Ericsson B Aktie

Hello, everyone, and welcome to the presentation of Ericsson's First Quarter 2026 Results. Joining us by video today is Borje Ekholm, our President and CEO and in the studio, I'm joined by Lars Sandstrom, our Chief Financial Officer.

As usual, we'll have a short presentation followed by Q&A. [Operator Instructions] Details can be found in today's earnings release and on the Investor Relations website as well. Please be advised that today's call is being recorded, and today's presentation may include forward-looking statements. These statements are based on our current expectations and certain planning assumptions, which are subject to risks and uncertainties. Actual results may differ materially due to factors mentioned in today's press release and discussed in the conference call. We encourage you to read about these risks and uncertainties in our earnings report as well as in our annual report.

I'll now hand the call over to Borje and Lars for their introductory comments.

Thanks, Daniel, and good morning, everyone, and thanks for joining us today. Q1 was a solid start of the year and with the results that reflects our continued execution against our operational and strategic priorities. We saw a very large currency headwind during the quarter, probably one of the toughest quarters from a comp ratio as the Swedish krona strengthened towards almost all currencies compared to last year. So this, of course, materially impacted every line of our financial statements with reporting sales falling 10%. At the same time, we performed well operationally realizing strong organic growth of 6%, with all segments contributing.

Our results are a testament to our leading portfolio and the investments we've been making in furthering our technology leadership. Over the last few years, we've actively managed to reduce dependence on geographic mix. Of course, we realize that North America often receive a disproportionate interest from, I guess, the community -- analyst community, but also around the world. And that's, of course, natural because it is a front-runner market. And this quarter, we saw sales reduced by mid-single digits in North America. But we could still deliver a gross margin of 48.1% for the group and 50.4% for segment networks, indicating that the work we've done to balance out the geographic mix is coming through in the results and giving us less sensitivity to geographic mix.

Cloud Software and Services continue to execute well. We reached a gross margin of 43.2%. That's up more than 300 basis points year-over-year. Revenue seasonality was in line with the guidance we had for the quarter and we saw some deals being pushed into Q2. And we expect to see that, therefore, stronger seasonality than normal next quarter. EBITA came in at SEK 5.6 billion with a margin of 11.3%, and the strengthening of the Swedish krona affected EBITA by SEK 2.2 billion. And you've also seen we have the revaluation of the long-term stock-based programs. And all of those are, of course, included in the results.

Cash flow during the first quarter is seasonably lower typically. Despite this, cash flow came in at a healthy SEK 5.9 billion with a net cash position of SEK 68.1 billion. And as you've seen just a couple of weeks ago, the AGM approved the Board's proposal on increased dividend and our first share buyback program. We will start to execute on the share buyback program next week with a target to buy back SEK 15 billion.

In the next phase of AI, we see that high-performance mobile connectivity will become increasingly important. Even so, our planning assumptions for the RAN market remains flat over the longer term. With disciplined execution, we create room to make selective investments in growth to broaden the mobile platform to new use cases and new sectors. We believe the growth will come in areas outside of our traditional CSP markets. And then we're talking about areas like enterprise and mission critical networks. In our Enterprise segment, which includes our wireless WWAN business, private networks, network APIs or as we now call it, actually network-powered solutions and mobile money, organic growth was stronger, which is encouraging. There are new markets that we see as key opportunities going forward. Of course, new markets take time to develop but we're now seeing these efforts start to scale.

I would also comment on the loss in Enterprise of SEK 1.4 billion. It's clearly unacceptable, but it also includes a number of onetime costs and have an improvement plan in place that we're executing on and we will expect to see that coming through shrinking losses during the rest of the year, comes from growth, operational discipline and of course, at the onetime cost base. We're also driving several other growth initiatives. And there, we see good progress in mission-critical networks which tend to be a bit lumpy and vary by quarter. We're experiencing strong interest in several verticals, particularly within Defense Solutions. In modern defense applications, high performance, and then I'm talking about large capacity connectivity is required. And this will make 5G stand-alone a cost-effective alternative. And we've seen a trial with the Italian Navy -- or actually deployment with the Italian Navy this quarter.

Another very exciting area is 5G-based sensing where one of many use cases is about detecting unconnected drones. And a few weeks ago, we showcased our solution, which is seeing significant customer interest, of course, given a difficult current market environment geopolitically. We see that our technology here has a great market potential, and we're now starting to invest to capture these opportunities. I would say this is just one example that you don't have to wait for 6G to get part of new exciting use cases with the technology we have. So we're seeing good momentum on our strategy execution, and we've strengthened Ericsson operationally. And I would say this is showing now in our Q1 results.

With that, let me give the word over to you, Lars, to go through the numbers in some more detail.

All right. Thank you, Borje. I will begin with some additional comments on the group before moving over to the segments. So net sales in Q1 totaled SEK 49.3 billion with organic sales growing 6% year-on-year. The growth was broad-based and sales grew in all segments and 3 market areas delivered double-digit organic growth, driven by continued 5G rollouts and increased uptake of 5G core. Americas declined 2%, with strong growth in Latin America, more than offset by a mid-single-digit decline in North America following a strong quarter last year. Reported sales decreased by 10%, impacted by a negative currency effect of SEK 7.8 billion then. So organic growth again grew 6%. IPR revenues were SEK 3.1 billion, and this run rate coming out of the quarter is approximately then SEK 13 billion.

Adjusted gross income was SEK 23.7 billion with a negative currency impact of SEK 3.8 billion. Adjusted gross margin was 48.1%, in line with last year, excluding iconectiv. On the cost side, operating expenses, excluding restructuring charges, dropped to SEK 18.4 billion, around SEK 2 billion lower year-over-year, driven mainly by currency as well as the divestment of iconectiv. Underlying inflationary pressures were more than offset by cost reduction driven by headcount as well as efficiency measures. And as Borje mentioned, adjusted EBITA, which excludes restructuring, but includes the other one-offs was SEK 5.6 billion. This is down by SEK 1.4 billion, including a negative impact of SEK 2.2 billion, the divestment of iconectiv and SEK 0.5 billion of additional share-based compensation costs coming from the increased share price here during the quarter. The EBITA margin was 11.3%. Cash flow before M&A was SEK 5.9 billion, driven by earnings and reduced net operating assets.

So let's move to the segments. In Networks, sales decreased by 8% year-on-year to SEK 32.9 billion with a negative currency impact of SEK 5.2 billion. Organic sales increased by 7%. Organic revenues grew in 3 of our 4 market areas. 2 strategic markets, India and Japan grew strongly. North America declined, impacted by customer spend reallocation in Q1 this year following recent market consolidation. Customer investments were also elevated last year due to tariff uncertainty impacting the comparison. Networks' adjusted gross margin decreased slightly to 50.4%, mainly reflecting actions to enhance resilience in the supply chain. Adjusted EBITA was SEK 6.4 billion, impacted by a negative currency impact of SEK 2 billion and benefiting from lower operating expenses, which were also supported by continued efficiency improvements. Adjusted EBITA margin was 13.3%.

Looking at the right-hand graph, the rolling 4 quarter gross margin stabilized around 50% and adjusted EBITA margin at around 20%. Moving to the segment Cloud Software and Services. Sales here decreased 9% to SEK 11.8 billion, including a negative currency impact of SEK 1.6 billion. So organically, sales grew by 4%, with growth primarily in core. Adjusted gross margin came in at 43.2%, an improvement from 39.9% last year, supported by improved delivery efficiency and a favorable product mix. Adjusted EBITA increased to SEK 0.6 billion with a margin of 5.3% despite a negative currency impact of SEK 0.3 billion. Lower gross income was offset by lower operating expenses here.

And looking at the right-hand graph, the rolling 4 quarters adjusted gross margin was around 44% and adjusted EBITA margin around 12%. And these are both new high levels. So reported sales on the Enterprise side decreased 30%, impacted by the sale of iconectiv and currency. On an organic basis, Enterprise grew by 4%, and this marks the second quarter of organic growth. Adjusted gross margin declined to 49.0%, reflecting the impact of the divestment of iconectiv and change in business mix in Global Communications platform. Adjusted EBITA landed at minus SEK 1.4 billion, reflecting the divestment of iconectiv and nonrecurring cost of SEK 0.3 billion in the current quarter.

Turning then to free cash flow, which was SEK 5.9 billion before M&A in the quarter. We delivered a cash to net sales of 13% for the rolling 4 quarters, above our 9% to 12% target. And cash flow generation was strong, supported by earnings and a stronger-than-normal seasonal reduction in operating net assets. Net cash increased sequentially by SEK 6.9 billion to SEK 68.1 billion here in the quarter. The buyback program of up to SEK 15 billion was approved by the AGM and share repurchases will start now soon.

Next, I will cover the outlook. Global uncertainty remains elevated given the broad geopolitical and macroeconomic environment, including the global semiconductor situation, and Borje will come back to this. The Q2 outlook assumes no tariff changes and the exchange rates specified in the report. For Networks, we expect sales growth to be broadly similar to the 3-year average quarter-on-quarter seasonality. And for Cloud Software and Services, we expect sales growth to be above the 3-year average quarter-on-quarter seasonality. We expect Networks' adjusted gross margin to be in the range of 49% to 51% and restructuring charges for 2026 are expected to be at an elevated level with a fairly large part already seen in Q1.

So with that, I hand back to you, Borje.

Thanks a lot, Lars. So our Q1 results demonstrate the strong execution on our strategic priorities and the actions we've taken over the last several years to strengthen the company operationally. This includes how we made Ericsson less reliant on any specific geographical mix, enabling us to sustain healthy margins in varying market conditions as you have seen in today's report. Our actions also include how we diversified our supply chain to mitigate as much of the geopolitical disturbances as possible. This continues to be a clear competitive advantage, enabling us to meet customer commitments amid the current backdrop. Of course, the global semiconductor situation remains challenging as the AI boom is increasing input costs.

We continue to take actions, and Lars mentioned this as well, to mitigate this impact by working closely with both our customers and suppliers, of course, including our pricing. While we believe we're in a good position, we are not immune to these disturbances. So they will have consequences on price and availability. As of course, AI may be the key driver for our industry longer term, we see AI as a net positive for us. The next phase of AI will see AI being industrialized, shifting focus from current focus on data centers, large language models rather to applications, devices, use cases. This will require advanced mobile connectivity with capabilities such as ultra-low latency and high uplink.

This puts us in the middle of the next phase of the AI era. With our strategy, we are well positioned to capitalize on this opportunity. We're doing this by providing the industry's best networks for AI and by expanding the mobile platform to new use cases and sectors. This includes exposing network capabilities through network-powered solutions, allowing developers to use the network capabilities to create new use cases. It also includes opening up new addressable markets such as enterprise solutions based on cellular technology and mission-critical networks. And this will allow us to capture a greater share of the value from connectivity and drive mid-single-digit growth for Ericsson while achieving our long-term margin targets of 15% to 18%.

So with that, I think it's time for some Q&A.

Thanks Borje. [Operator Instructions] Thanks, operator. Time for the first question.

The first question this morning is going to come from Simon Granath at ABG.

I have a question on Lars on the memory and cost inflation. And the Q1 margin performance for Networks was, in my view, strong. But given the rising memory prices and as inventory runs down through the year, how confident are you that memory prices won't be a significant headwind for the rest of the year? And all else equal and on this topic, should we see Q1 marking the highest level for the year?

All right. Thanks, Simon. When it comes to outlook, we give, as you know, outlook for the first -- for the next quarter here. So -- but when it comes to memory cost and other semiconductor costs, there is, as we say here, a headwind coming. And -- but we should also remember that it is a smaller part of our total cost base, of course. But there is a headwind coming, and we are working hard to mitigate together with our suppliers, but also together with our customers to share the burden here. And then it comes to what can we do when it comes to product substitution, et cetera. And it is a bit too early, I think, already now to say how the impact will be. But you will -- if there is -- and when there is things happening, you will see that more coming into the second half of the year.

The next question will come from the line of Andrew Gardiner at Citi.

So just on the North American revenue trends that you saw in the quarter, you've highlighted the pressure there, Borje, sort of mid-single digit down year-on-year. I'm just wondering what your view for 2026 as a whole is for that region. The comps, as you suggested, were particularly tough in the first quarter given the tariff impact last year and some buy forward. Does that -- does the decline that you've seen in the first quarter, should that lessen as we come through 2026? Or are there other factors we should be aware of?

You see a lot of forecasts in the market on the North American market. And I would say the development you've seen during the first quarter is probably similar to what we should expect for the year. I think that's fair to say given our customers' guidance. At the same time, we have a little bit different mix compared to the market where, as Lars noted, we were maybe hit a bit harder than the general market, the first quarter because of the consolidation we've seen among the operators in the U.S. that was closed. So if you net-net, I don't see a changing market condition, but I see a bit better mix for us vis-a-vis the market. And as you noted, we had a tough comp in Q1. But don't assume the U.S. all of a sudden is going to change direction.

That's why I want to come back to what I think is more important today is we're less exposed to North America from a geographic mix perspective and the investments and commitment we have been talking about to diversify our mix. So if we are a bit weaker in North America, but stronger in another market for a quarter, we can actually compensate that and keep a very healthy gross margin. And that, I think, lends for a better predictability of the total company and actually for a healthier way of operating the company. So -- well, I think North America always will be important. From a mix point of view, it will be less important going forward. We work with the customers as front-runner customers, but it's always going to swing a bit up and down in a quarter. So we're -- on the one hand, yes, I would always prefer them to grow, but the reality is it will swing. So the question is more how we can provide a healthy gross margin, a much more stable gross margin. And I think Q1 is a good indication of the work we've done.

I mean I suppose related to that, I mean you mentioned the other strategic markets. I mean India and Japan have been the 2 you've highlighted away from North America. You did see good growth there. I mean is that something that is not just a 1Q impact, but we should expect steady growth from those 2 key markets through the year?

I would -- there, we have actually strengthened our market position. So we should see healthy growth as we continue to deliver on those opportunities. So I'm actually very comfortable about that.

The next question is going to come from the line of Erik Lindholm-Rojestal from SEB.

Just one question here. I wanted to ask on OpEx and the impact of cost savings. I mean it looks like underlying OpEx is down around SEK 0.5 billion, as you mentioned, despite the one-off impact that you flagged here. So what sort of inflationary pressures do you see in OpEx for the rest of the year? And when should we start to see the impact from the cost savings that you've launched in Sweden here at the start of the year, for example?

Yes. When it comes to OpEx, I think in the quarter here, it's down organically. I think it's currency and iconectiv that is impacting and then there is somewhat also underlying cost reduction coming through here. And we are continuously working with that. The inflation we talk about since a big portion of the cost base in OpEx is related to people. Of course, there is an underlying continuous salary increase that is coming that we need to work with. And our working assumption is that we live in the flat RAN market and that we need to accommodate too by continuously working and finding efficiencies and reductions where it is possible. And then we do that continuously. So that is what we are working with here every quarter continuously. And you saw there was quite a bit of restructuring here coming in the first quarter now, primarily to the Sweden area, but also the rest of Europe. We have activities in North America, in Asia, et cetera. So that is a continuous work that we are doing, and we will continue that also in the coming quarters.

All right. But I guess it's fair to say that these measures will more so show in the second half then?

The ones that we announced today or in this quarter, of course, they come more in the second half of the year and into next year. And then we have the previous ones that is coming, you can see now. So that is a continuous work that we do.

I would just add there, by experience, it takes a bit longer than you hope to see it in the numbers. So theoretically, it should come in Q3, of course, or Q2, Q3, but it will be a bit of a delay there. That's why you see the cost kind of not exactly following the number of employees because it's simply associated with costs around when we take costs out. So -- but you will see it after the second half and into next year.

The next question is going to come from the line of Andreas Joelsson, DNB.

A follow-up on the COGS question that we had. Of course, there's a headwind coming from the component prices, but you have been able to increase the gross margin in Networks for some time and now it has stabilized. What other areas within costs have you sort of from experience the last few years, learned that there is maybe that you can use to compensate for component price increases. So it's not just negotiations with vendors and customers that could keep the gross margin resilient, as you say, if you understand that blurry question.

Thanks for the question, Andreas. I can try to give you a notion. Of course, the most important one is to work on the prices. It's undoubtedly the case, and that we continue to do. The other levers we have, which actually have proven to be very sizable is product substitution, i.e., we can -- through technology development, we deliver a product that performs the same, but at a lower price or a lower cost point, I should say. So that actually is maybe the most important one that we've been able to do for quite some time. And I feel quite comfortable we'll get that with the next-generation ASICs coming within not-too-distant future. Then we have also been able to take a lot of costs out on service delivery.

And there, I think there are more costs to be taken out. So I think we have -- it's not -- it doesn't come easy. It doesn't come in that sense for free. But I do think there is a number of areas we can kind of leverage to protect a healthy gross margin longer term. And that's why I feel we have kind of reached a different level of performance and control on the cost side. And you know component prices have varied already now. So we've been able to handle that in many different ways. And our ambition is clear. That's what we intend to do going forward as well. And we have a number of degrees of freedom in what we actually do to manage the margins.

The next question is going to come from the line of Richard Kramer at Arete.

Borje, you mentioned the early stages of physical AI, which would involve greater mobile connectivity. But can you point to anything within your portfolio which could provide a material uplift to group sales growth, especially addressing the sort of data center AI spending boom given that enterprise remains fairly small in the mix?

Yes. Richard, it's a good question. We're not going to see any sales directly from data center expansions right now. Our, call it, exposure to AI is more going to come from the applications when you start to see inference play a very different role. So we may not be the frontrunner on the AI wave, but we are rather the longer term, I would say it's one of our key drivers of traffic in the networks and the connectivity will does look different. That's why I believe the exposure we have is going to come more from that traffic development from AI moving into implementations, but it's also going to come from AI in enterprises.

And here, we start to see some front-runner industrial companies, still small, but actually picking up demand in 2 areas: enterprise connectivity, i.e., wireless solutions or as a matter of fact, in interest for network APIs and embedding that into enterprise use cases. So I would like -- I don't want to promote that we have any exposure to data center. So that wave is going to go. We're more a little bit behind that, I guess, in the -- I don't know what to call it, but kind of benefiting from the overall migration of applications towards AI.

Next question is going to come from the line of Felix Henriksson, Nordea.

Good to see the Cloud Software and Services EBITA margin expanding to around 12% on a 12-month rolling basis. I wanted to ask, is there any reason why the margin expansion in this segment should not continue given that growth seems to be led by very margin accretive 5G core demand?

It's a good question. I think what we have said is that the first aim here is to reach a stable double-digit margin and then we work from there. And I think we need to remember that the cloud software is also connected to the flat RAN market. So there is -- but still, there is an underlying growth that we are able to capture with in the core area, which is good, I think. And we have managed to show that we are having a good market position there. So we continue to work on that. So we don't promise. We guide quarter-by-quarter, as you know, but we feel we have reached a stable level now in a good way in the company.

The next question will come from the line of Ulrich Rathe at Bernstein.

This is more a question for Lars, please. You talked about how you have immunized margin to the foreign exchange moves by matching cost and revenue better. Can you sort of talk about that a little bit more? And I'm wondering, in particular, 2 areas here. One is to what extent are you still benefiting from hedging that could roll off and produce an incremental headwind if the FX rates stay at where they are? And also, with the current level of FX matching in cost and revenue, what would be the effect of a strengthening -- sorry, of a weakening Swedish krona? Would that actually correspond to a material margin driver for you or not?

I think we need to separate between gross margin and EBITA margin here. On the gross margin, we are fairly balanced in the currency baskets, whereas in the OpEx side, we are much more exposed with the Swedish SEK ratio there. So it's higher as we get more of an impact from that end. So I think from -- so that's what's impacting, so to say, the FX mix that we have. So I think that -- and if there is a significant change, you would see that more impacting EBITA rather than gross margins in that sense. And then when it comes to hedging, we have some hedging, but rather low levels and they are coming out. So it should not be a big impact going forward.

Next question will come from the line of Sandeep Deshpande at JPMorgan.

Could I ask -- I mean, you've seen this weakness in North America. In terms of your exposure to 5G and 5G core outside North America, do you see there is a potential for significant upgrades? I mean that is the market hasn't shifted as much to 5G or 5G core over the last few years as it has in North America and thus, the growth outside North America could compensate if North American growth over the next few -- couple of years is not going to be as strong. And the question I'm asking here is that historically, outside North America, they have not been as keen to quickly upgrade to next-generation technologies like 5G or 4G even before that. So I mean, how do you see that progress, I mean, at this point?

Borje, maybe we ask you to take that one.

Yes. That's a very good question. North America have been a front-runner market. It's still not fully migrated to 5G SA even there. The only market which is fully 5G SA actually is China. So we see that that's where the market will go. We see a number of operators today increasingly focused on migrating to -- from 5G non-standalone into 5G SA and then 5G advanced. It's still largely a work in progress. So if you try to give some sort of statistics, maybe 1/4 of the operators have some sort of 5G SA and 5G SA of scale is fewer than that. So I would say that's actually one of the major opportunities for our industry. And it's 2 things. Of course, it's an upgrade cycle for us. But I think more importantly, it will allow the operators to start offering differentiated services.

So you can have network slicing, dynamic network slicing, for example, can happen when you have 5G stand-alone. So the way we think about this is it's actually one of our more positive opportunities from a medium-term perspective as companies or operators upgrade. And the way to think about this is in order to prepare your network for 6G that eventually will come, you need to actually migrate through 5G standalone into 5G advanced and then have built the architecture that's prepared for 6G. So I see while not everyone have transitioned today, they will need to go that way. And so it will provide an interesting opportunity for us as operators upgrade. So that's why we've invested in positioning us well on 5G core, and we are now starting to see growth coming through on 5G core. So it's actually, I think, a net-net positive for us as we move forward.

Next question is coming from the line of Daniel Djurberg at Handelsbanken.

A question. I was quite impressed by the network gross margin given the geographical mix with large deployment in India and also growth in LatAm. It could indicate that it was capacity heavy. And if that is correct, should we expect more coverage and hardware deployment in second half in India, for example, and Japan, i.e. supportive on gross margins and then also we have the cost inflation that you mentioned.

Maybe, Borje, we can start with your thoughts on those 2 markets more broadly and Lars on the margin.

Yes. I know we were often talking about coverage and capacity before. I would say what we have tried to do is actually to reduce the dependence on that as well. So when you look at this, there is always an element of higher-margin software sales versus hardware, but it's less important going forward. So the comment here is probably to say that there is a tad more capacity, but it's not meaningfully impacting the profile here.

Yes. No, I think you covers it well. So I think the outlook you see in -- for the Q2 here for Networks is 49% to 51%, and that is what we see now based on the product portfolio and product deliveries and market mix we foresee now. So I think signals rather stability as well.

The next question is coming from the line of Sebastien Sztabowicz at Kepler Cheuvreux.

On the defense market opportunity, you've been talking about a $10 billion opportunity in that market. Now you are talking about some trials happening currently in Italy. When do you expect those opportunity to materialize and generate first significant revenue? Is it an opportunity over 3, 5 or beyond 5 years? Just to understand a little bit the phasing and the ramp of this technology.

Sure. Borje, your thoughts on the overall opportunity.

I actually think the opportunity is more near term. It's very hard to judge. But I think it's a very good question. And your perspective may be as good as ours. What we see though is a very near-term, very strong need in the market for modern, call it, modern warfare involves a lot of AI and actually heavy need of communication and connectivity, therefore. So we see that this is much more of a near-term opportunity. I wouldn't say 5 years plus. It's more kind of a mid, call it, use 3 years, for lack of a better word, before this opportunity. But if you start to think about -- take a critical site, it could be a sports arena or a nuclear power station or an energy generation station or something like that. The threat from drones are pretty much today. So when you start to think about when is the technology needed from a risk perspective and protection perspective, it's actually a near-term risk.

So as I know it or as I see it, I think we need to tackle that need when the market is there. So had I wished we would have started a few years earlier, yes. But I think we're in pretty good shape to start to see these opportunities materialize over the next even maybe 9, 12, 18 months opportunity, and then they start to scale at 2, 3 years. So I'm quite excited about these opportunities because the communication network and the scale we have makes our solutions rather competitive. So I'm actually -- I'm thinking this is -- our ambition is that this is a nearer-term opportunity than 5-plus years. But then putting an exact number on it, I can't, to be honest. But I'm -- but the reception we get from customers is very positive.

The next question is coming from the line of Sami Sarkamies at Danske.

I still wanted to go back to the rising input costs that were discussed earlier in the call. I have a 2-part question. Firstly, can you elaborate on your current operator agreements allow you to raise prices if needed? Do they, for example, cater for above normal cost inflation? And then secondly, when you look at your operator customers, are you seeing rising energy costs to have an impact on their behavior and potentially investment plans for the year?

Lars, we start with you on the first and Borje...

We start on the customer side. There are -- it depends on the renewal cycle of contracts that we have with customers, and that can vary a bit in different markets and different customers. So there are -- but there are still an opportunity, I think, to take this discussion because we are -- these are a bit exceptional times. So there is -- we need to take this in a good commercial discussion with our customers. And when it comes on the energy impact on operators, I think that is an important part, the TCO where our products with the right investments they do, they can drive down their TCO. So I think in that sense, it helps our competitive advantage in the market. But we have not seen any big impacts yet. But of course, if there is a prolonged situation with high energy costs, that could have an impact, but we have not seen that. And I think you should also remember the revenue base of our customers is very stable. So they have quite -- we have seen this historically. And normally, our industry or our customers are quite resilient over time.

I don't know if you want to add more on that, Borje.

You've captured it. What we see and we see an increasing focus on energy efficiency in discussions with customers. So I think this will be a topic -- and as Lars said, it kind of goes both ways, right? It's an opportunity because they need to actually upgrade some of the old equipment, and they actually need to move towards modern. And at the same time, they get a bit tougher on their own cost position. So it kind of sits in that cost a bit [indiscernible] as we say in Swedish, I don't know what that translates to. But that's kind of the situation, right? The interesting thing is that when we now are around, we start to see customers talking about how you actually phase out old technology.

And we're even starting to see customers in some markets talk about how do we phase out 4G and actually migrate to 5G and in a way, then have only 5G and 6G. Of course, 3G being phased out in most regions, except Europe possibly. That will also support energy efficiency. So we're actually -- this energy squeeze leads to a bit of a -- when you asked about change in behavior, yes, it is a change in behavior, but much more focused on how do I get on the latest technology curve that helps me with lower process cost. And that will include phasing out 2G, 3G and soon 4G in some markets.

Moving on to the next question, please, which is coming from the line of Oliver Wong at Bank of America.

I wanted to focus on perhaps the cost from things like logistics and transportation since given ongoing global geopolitical events, it seems like there could be some impact on that. And also perhaps on the instability of the supply chain, could that be a risk to you? So yes, it would be great to kind of discuss about the logistics and transportation costs. How is that relative to perhaps the impact from rising memory in terms of potential headwinds going into the year?

And I think when it comes to logistics and transportation, we have seen some impact now. But in the total scheme of our cost base, it's limited. So we should remember that. I think it's important. And especially now in Q1, we had some additional costs with the Middle East conflict there where we had to do some rerouting, changing transportation lines, et cetera, utilizing then our flexible production system and supply chain. So I think, yes, it has given some, but we have been able to make sure that we deliver to our customers, which is, at the end of the day, most important for us. So I think -- and that ties a little bit into your supply chain question there. We have a rather well-distributed supply chain today to manage disturbances. We have proven that, I think, during the pandemic. We have proven that now during last year on the tariff side, et cetera. So we continuously work with this and try to mitigate when the things are happening. And of course, as we have said on the tariff side, we cannot guarantee that we are immune, of course, but we are, I think, managing it pretty well.

The fair comment is also that we have a distribution hub in the Middle East. So we've been impacted for sure already and been able to mitigate that fully by leveraging the flexible supply chain. So I think this -- we'll have to focus on managing it, monitoring and managing it as well as we can.

We have time for one final question this morning. We can move to the next. So a follow-up question from Daniel Djurberg at Handelsbanken.

I know I should ask your customer this and I will, but still Latin America saw good growth in Networks, and this is a geography with really tough competition. To me, your radio access network portfolio is more competitive to [ Pearson ] for many years, you showcased at Mobile World Congress. Can you give -- or obviously, can you give any examples of this, if it's correct? And how we should think about markets like Latin America, Sub-Sahara, Eastern Europe, where you have tough Chinese competition?

It's a good question. And the reason why I'm hesitating is more that we get into specific customer situations. And I don't want to talk about that for the simple reason that if I would be our customers, I wouldn't like us to talk about it because it may be my competitive positioning in the market that I'm revealing. That's why I think it's inappropriate for us to talk about customers. But what I can say is that we've -- we think our -- the competitor we have to always beat is one of the Chinese. They're, of course, very strong. I have no doubt about that. But we can see that we can actually go head on with our product portfolio, thanks to the strong performance, the strong infield performance we see on quality benchmarking when we compete with them, where we come out well. You can see that in all the -- whether it's Umlaut test or OpenSignal or whatever, we come out well in that comparison.

We perform also very well on energy once you're in the field. And it's because the way we have focused on developing the products, it's actually dedicated not to lab trials, but more to infield performance. So operators that looks at that total perspective there we can compete, right? And we've seen that in Latin America. We see it some -- in Africa, it's maybe the hardest market to compete. And you've seen us fight there. But at the end of the day, we remain competitive, and it depends on operator preferences as well. We certainly, in Southeast Asia, win market share when we compete also with the Chinese competitors.

Thank you. So that comes to the end of the Q&A session. Thank you for joining us. Thanks, Borje and Lars as well.

Thank you.

Hello, everyone, and welcome to the presentation of Ericsson's Fourth Quarter 2025 results. With me here in the studio today are Börje Ekholm, our President and CEO; and Lars Sandstrom, our Chief Financial Officer.

As usual, we'll have a short presentation followed by Q&A. [Operator Instructions] Details can be found in today's earnings release and on the Investor Relations website. Please be advised that today's call is being recorded and that today's presentation may include forward-looking statements.

These statements are based on our current expectations and certain planning assumptions, which are subject to risks and uncertainties. Actual results may differ materially due to factors mentioned in today's press release and discussed in the conference call. We encourage you to read about these risks and uncertainties in our earnings report as well as in our annual report.

I'll now hand the call over to Börje and to Lars for their introductory comments.

Thanks, Daniel. So good morning, everyone, and thanks for joining us today. It was a strong end of the year, as we executed with discipline and made solid progress against our strategic priorities. We are building a more resilient Ericsson. We expanded EBITA margins year-on-year for the ninth consecutive quarter, and we're getting closer to our long-term target of 15% to 18% EBITA margin and we ended the year with a net cash position of over SEK 61 billion.

Our cost initiatives are just one component of our actions to structurally improve margins and cash flow. And you have seen that we have reduced the headcount, for example, by 5,000 over the past year. And we expect to continue reducing headcount going forward. And last week, we announced some initiatives we're taking in Sweden as part of a global effort we do to keep cost efficiency in our business.

With the operational improvements we've implemented over the past few years, they are now getting increasingly visible in the P&L, and we had another 48% gross margin quarter now in Q4. The EBITA margin was 18%, both for the quarter and the full year, and that means that we are tracking very close to our long-term financial targets after normalizing for the about 3 percentage point benefit from the iconectiv gain. And now going forward, we expect to see improving operating leverage as our top line accelerates that we could see in Q4.

Now that the underlying demand environment for mobile networks remain actually flattish. But it is encouraging that we had an organic growth of 6% during Q4. And the reason for this is that over the past few years, we have invested in a number of growth opportunities and growth initiatives like 5G core, mission-critical networks and enterprises, and I'll expand a bit more on this.

In my view, we're actually entering a very exciting era of what we can call hyper-connectivity. So now we're starting to see everything being connected. I would say Ericsson is really well placed for this paradigm shift, and I believe we have the right strategy to win. To date, AI investments have been focused on models, semiconductors, data centers, et cetera. For sure, these are really critical, but the real economic value will actually come in AI applications and devices.

So think about drones, humanoids, could be connected glasses, XR glasses, could be instantaneous or simultaneous translation services. You have a number of these things. All these new type of use cases, AI use cases, will really changed the nature of traffic with much more demand for uplink and low latency, and it has to be resilient and trusted.

So when you think about this new world with AI is going into the physical world, if you call it a kind of a physical AI, those applications and use cases will be distributed, but more importantly, they will also typically be mobile. So they will require advanced wireless connectivity.

So best effort connectivity, Wi-Fi, 4G, and I would even say 5G non-standalone, will simply not be enough. Instead, we will require 5G standalone today and then later on will require 6G. But this new world will also require better mid-band coverage to get the right performance of the network. And I'll take just 1 example, and you see China having a 10x denser grid than the rest of the world.

And I would say that's one of the reasons why many are saying China is a formidable competitor in AI today as they are moving into AI applications. So at this point in time, it's a very exciting time. Our strategy is to lead in mobile networks with high performance, autonomous and programmable networks that are 5G native and at the same time, scale this mobile platform to new areas, like mission-critical enterprise solutions, but also providing tools to developers.

So now let me go briefly through some of the progress we made against our strategic initiatives during the last year. Through our high-performing programmable and autonomous network, we're enabling our CSP customers to deliver differentiated performance and create new applications and use cases to monetize. And when you think about differentiated performance, it's actually creating dedicated performance for the application you have at hand.

And during the year, we actually signed several key agreements with front-runner customers like Telstra, Vodafone, but we also made critical inroads in the important Japanese market with all leading operators. These advanced networks that we're building together with front-runner customers will be key to monetize and scale the AI opportunity.

In parallel, we focused on scaling the mobile platform to new use cases and sectors, the most mature new use case is fixed wireless access, that during 2025, actually reached 150 million global subscribers. And typically, and most often, they have better customer satisfaction than other access technologies like fiber, for example.

And now as you've heard me say earlier, we're also starting to see traction within mission-critical applications. And this, we think, is a key growth opportunity for us going forward. During 2025, we executed many new agreements in the public safety sector, and we're also targeting national security and defense operations.

On the enterprise side, we're continuing to strengthen our position. The market for network API is actually starting to develop. In 2025, Vonage was first to offer aggregated access to network APIs across all 3 major U.S. carriers. And these advanced APIs included advanced fraud detection, and we have significant customer interest today.

Our joint venture, Aduna, onboarded and achieved full coverage in 5 countries, including the U.S., Spain, Germany, Canada and the Netherlands. In enterprise wireless solution, we're seeing the market for private 5G starting to industrialize. It's still, though, early days. So we -- but we continue to see growth in our Wireless WAN solutions, but that was partly offset by lower sales in private 5G. So it's still a developing market here.

So -- but before passing on to Lars to go through a bit more on the numbers, I'd like to take a moment to just go through our capital allocation strategy. Our top priority is to invest for technology leadership, and we expect this to be largely organic. We don't really see any need for large acquisitions going forward, as we believe we have the assets needed to execute on our strategy. However, we expect to see some smaller, potential tuck-ins, but that will be smaller in nature.

So our current, very strong financial position offers scope for increased shareholder distributions. And as you have seen in this report, the Board is proposing an increased dividend to SEK 3 per share and the buyback program of up to SEK 15 billion. So that would be a total of SEK 25 billion to shareholders. This represents the largest shareholder distribution in our history and reflect our strong position and the Board's confidence in our strategy.

So Lars will now go through this as well as our financials. So over to you, Lars.

All right. Thank you, Börje. I will begin with some additional comments on the group before moving on to the segments.

Net sales in Q4 totaled SEK 69.3 billion, with organic sales growing 6% year-on-year and with growth in all segments. Sales grew in the market area, Europe, Middle East and Africa; and in market areas Southeast Asia, Oceania and India. Market area, Americas, was broadly stable impacted by intense competition in Latin America, offset by slight growth in North America, driven by higher software growth; and Northeast Asia declined.

Reported sales decreased by 5%, impacted by a negative currency effect of SEK 6.8 billion. In Q4, adjusted gross income was SEK 33.2 billion, including a currency headwind of SEK 3.6 billion. Adjusted gross margin reached 48% as a result of our cost reduction measures and operational excellence in both networks and cloud and software and services.

On the cost side, we made steady progress. Operating expenses, excluding restructuring charges, dropped to SEK 21.4 billion, around SEK 2 billion lower year-over-year. Of this, about half is currency and the rest is cost initiatives. Excluding FX, R&D remained broadly stable.

Adjusted EBITA was SEK 12.7 billion, up by SEK 2.4 billion, including a negative currency impact of SEK 2.5 billion and the EBITA margin was up around 4 percentage points to 18.3. Behind this improvement is the good progress we've seen in terms of optimizing our operations and lowering our operating expenses.

Cash flow before M&A was SEK 14.9 billion, driven by earnings and reduced net operating assets. As Börje has already highlighted, the Board will propose higher shareholder distributions following the good 2025 cash generation.

Let's move on to the results for the full year. Net sales amounted to SEK 236.7 billion and organic sales grew by 2%. Growth in Americas and in Europe, Middle East and Africa was partly offset by declines in the other market areas. At the same time, reported sales decreased by 5%, impacted by a negative currency effect of SEK 13.9 billion. The sales decline, which gives a significant volume impact on gross income, was more than offset by higher gross margins.

Adjusted gross margin was 48.1% with support from cost reduction initiatives and operational efficiency. The result on adjusted gross income was an increase of SEK 2.5 billion to SEK 113.9 billion, despite a negative currency impact of SEK 7.2 billion.

Turning to operating costs, excluding restructuring charges and impairments. Operating expenses dropped to SEK 81.2 billion, which is SEK 7.4 billion lower than the prior year. Of these, about 2/3 come from our cost initiatives, mainly from SG&A and the rest is currency. Adjusted EBITA increased to SEK 42.9 billion, and the margin was 18.1% or 14.9% excluding the capital gain from iconectiv.

Net income for the full year was SEK 28.7 billion, including the benefit from iconectiv -- the gain from iconectiv. Cash flow before M&A was SEK 26.8 billion, a reduction of around SEK 13 billion compared to the prior year. In 2024, a strong working capital reduction contributed to higher operating cash flow. I'll cover cash flow more in details here later.

So let's move to the segments. In Networks, sales decreased by 6% year-over-year to SEK 44.2 billion, with a negative currency impact of SEK 4.4 billion, so organic sales increased by 4%. We saw organic growth in market area, Europe, Middle East and Africa, driven by Middle East and Africa. Sales also grew in Southeast Asia, driven by Vietnam.

Sales declined slightly in Americas due to continued price competition in Latin America. Sales were broadly stable in North America with continued healthy investment levels. Sales also declined in Northeast Asia due to timing of network investments. And Networks adjusted gross margin increased to 49.6% despite the higher share of service sales. The margin benefited from cost reduction actions and operational efficiencies.

Adjusted EBITA in Networks was stable at SEK 10.1 billion despite a currency headwind of SEK 1.8 billion. And adjusted EBITA margin was 22.8%, an increase of 1.2 percentage points compared to last year. And looking at the right-hand graph, the full year adjusted gross margin reached 50% and stabilized at the new level, and adjusted EBITA margin reached 20.7%.

Moving on to segment Cloud Software and Services. Sales increased by 3% year-over-year to SEK 20 billion despite a negative currency impact of SEK 1.8 billion. Organically, sales grew by 12%, mostly driven by higher core sales across all market areas and timing of project deliveries. Adjusted gross margin came in at 44.3%, an improvement of around 5 percentage points compared to last year, driven by a high share of software sales and continued delivery efficiency.

Adjusted EBITA increased to SEK 3.7 billion with a margin of 18.6%, supported by the effective implementation of our strategic initiatives. Looking at the right-hand graph, the full year adjusted gross margin was 43% and adjusted EBITA margin 11.4%. These are both new high levels.

Enterprise sales stabilized on an organic basis in Q4, growing 2%. Reported sales decreased by 25%, and that's an impact of the sale of iconectiv and currency. Global Communications platform organically grew by 3%, driven by an expansion in CPaaS. And adjusted gross margin declined to 52.1%, driven by the iconectiv divestment. Adjusted EBITA landed at minus SEK 1.1 billion, improving by SEK 0.1 billion compared to last year despite the iconectiv impact.

Turning to free cash flow, which was SEK 14.9 billion before M&A in the quarter and SEK 26.8 billion for the year. We delivered cash flow to net sales of 11% for the year within our 9% to 12% target. The decrease in cash flow year-on-year is due to very strong working capital reductions in 2024. Working capital in 2025 was broadly stable at historical low levels. And net cash increased sequentially by SEK 9.4 billion to SEK 61.2 billion.

Return on capital employed in 2025 was 24.1%, including the iconectiv gain, while excluding it, it was around 19%.

Then turning to capital allocation. During 2025, the Board has undertaken a review of the balance sheet and the capital allocation principles. On the balance sheet, we remain committed to an investment-grade credit rating and maintaining a solid net cash position.

Turning next to the 4 capital allocation priorities. First, the top priority is to maintain a technology leadership through continued R&D investment to ensure customer confidence at all times. Second, we are committed to a stable, to progressive ordinary dividends. And third, as already -- as Börje mentioned, we remain selective with inorganic investments. And finally, any excess cash will be distributed to shareholders.

So for 2025, the Board will propose an increased dividend of SEK 3 per share and a share buyback program of up to SEK 15 billion at the AGM. After adjusting for the total shareholder distribution of approximately SEK 25 billion, the 2025 net cash position is at a solid level, considering future investment needs and the business outlook.

Next, I will cover the outlook. Global uncertainty remains with potential for further changes in tariffs and broader macroeconomic factors. The outlook assumes stable exchange rates and no tariff changes here. So for Networks, we expect Q1 sales growth to be broadly similar to the 3-year average quarter-on-quarter seasonality. For Cloud Software and Services, we expect Q1 sales growth to be below the 3-year average quarter-on-quarter seasonality. And we expect Networks adjusted gross margin to be in the range of 49% to 51% for Q1.

And restructuring charges for the full year '26 are expected to be at an elevated level with proposed headcount reductions recently announced in Sweden and continued actions across other markets.

With that, I hand back to you, Börje.

Thanks, Lars. So today, we have a very strong position and a very competitive portfolio. In many markets, there will be a need to invest to keep network performance at a competitive level. And as you've seen, we made critical inroads in many key markets during the year, for instance, in Japan. In 2026, we're planning for a flattish RAN market, but expect growth to come from new areas.

This means we will need to continue our efforts on operational efficiency. And by doing so, we can strengthening our company for varying market conditions. This will enable us to continue with critical investments in technology leadership including increased R&D investments in defense and mission-critical, while at the same time supporting our margins and cash flow generation.

Overall, as I mentioned before, we're entering a very exciting time where AI will move from a focus on data centers and large models to devices and applications. This will require advanced wireless connectivity, putting Ericsson in the middle of the next phase in the AI era. Our strategy is focused on making sure we capture this opportunity.

We're doing it by providing the industry's best network for AI that enable differentiated services and new monetization opportunities. This includes both new use cases including by exposing networking capabilities through network APIs, but also new sectors, such as mission-critical networks. This will allow us to capture significant share of the value from connectivity and help drive growth for us as Ericsson.

So if I draw this out a bit longer term, I believe we can have a model with a flattish mobile networks market, but with our investments in growth areas that we -- basically, we can see a modestly growing top line. So if you combine the operating leverage, actually improving profitability in the Enterprise segments as well as share buybacks, we should see a healthy growth in profit per share.

So to wrap up, in 2025, we were laser focused on strategy execution and continue to take critical steps to position Ericsson for the future. We're unlikely to see growth in the RAN market this coming year, but our investments in mission critical 5G core and the enterprise will drive growth for the company. I would say it's exciting if you ask me. On that note, I also want to thank all my colleagues at Ericsson for a lot of great work. Thank you, team.

With that, I think it's time for you, Daniel, to lead us through some Q&A.

Thanks, Börje. We'll now move to the Q&A. [Operator Instructions] Thanks. Okay. Operator, we're ready to open the line for the first question.

The first question today is going to come from the line of Simon Granath at ABG.

Congrats team Ericsson for the solid results here. On OpEx, I'd like to push a bit on the medium-term trajectory and the R&D balance. With the RAN demand looking broadly flattish into 2026. OpEx growth largely reflecting salary inflation rather than volumes. If we assume a similar demand environment into 2027 with [indiscernible] still later in this decade, how do you think about the risk of managing R&D and were capabilities changes too early? So simply on the mid-term OpEx trajectory?

Mid-term. When you look at the OpEx levels that we have today, and the structure we have, it's a question about working and investing, and we are already in 2025 and back -- and going into this year, there are key strategic areas where we are investing and some other areas where we are taking other decisions. So I think that -- and that will also be how we will work going into 2027.

Then of course, there is a continuous cost inflation that we need to drive through productivity to ensure that we keep the right level here going forward as well. So there will -- and when these big investment comes, we will see. I think you will have to comment as well from your perspective.

Yes. I think the -- given the flattish market we're in, we will have to work continuously on the, I call it, R&D efficiency. But there is also a question of making sure we allocate to the right areas. This is why new areas like mission-critical is actually critical to be part of as well as defense applications. So we believe that we can -- even in a flattish market, we can actually have the right R&D level with the program and with the efforts we have in place.

But it's, as you know, it requires us to really be at the forefront of R&D efficiency as well. But you should not expect us to -- put it this way, we are not going to trade off technology leadership, and we believe we can have technology leadership at the spend level even into '27 and beyond.

Moving to the next question, please. The next question is going to come from the line of Erik Rojestal at SEB.

Congratulations on the results here. So just Börje, you mentioned increasing investment in defense in '26 and mission-critical was a key driver here in the quarter. I understand this is a good market for you right now, but can you please shed some light on how large the exposure is that you have currently in this area? And what the size of the opportunities that you see out there? How large are they?

We -- if we start in the end of discussing -- first of all, what we want to say here is, in reality, the investments we make in defense today is captured in the total R&D spend. And as we go forward where we see that, we probably need to increase that a bit. And the reason for that is we actually see the potential for a very sizable market in defense given what the spending in the U.S., of course, but it's also the increased European spending on defense will make this into a fairly sizable market.

And we see that market moving from, what I would call, dedicated solutions, kind of proprietary technology solutions into much more 3GPP-enabled solutions. And the reason for that is simply that is more cost effective and it's going to be much better performance. So we see actually the communication market in defense to be a sizable opportunity that we want to make sure we're early on in. But there are also other applications.

So think about defense from a broader perspective, the sensing capabilities of the solutions we have actually allows you to, for example, do drone detection. Think about where the usefulness of that and it can do detection of objects that are not connected. So it's basically maybe popular wording will be called the radar.

These are major opportunities that we would say are really large that we want to position ourselves to go after. So when you see us increasing spending, it's not -- I think part of it will be offset with other efficiency gains, but we want to say that we actually go after an opportunity here that we think is rather sizable.

Thanks, Erik. Moving to the next question, please. The next question is going to come from the line of Jakob Bluestone at BNP.

I had a question around supply chain shortages. I'm wondering sort of broadly, are you seeing any issues that might hold back your ability to grow? And specifically, can you comment on the impact of memory price increases? So what share of your bill of materials relates to memory chips? Do you hedge these? Can you pass on any price increases to customers?

When it comes to the supply chain, I think we have worked for quite some time on resiliency. And when it comes -- that is including then supply chain, so to say, deliveries. So that is continuous work that we do. So -- but of course, when it comes to the memory side, it has been quite a bit of noise around that. But I think we are in a good position of handling that as it looks for this year here.

And on the pricing side, it is a mix. Of course, there is some impact, but also here, it's really working close with our suppliers also together with our customers to make sure that we are not squeezed in the middle here. So it's both ends here to work with.

Can you maybe just expand how have you avoided shortages? Is this just by building inventories, just given the sort of...

It's part of the -- how we work, but also to have a good relation and long-term relationship with the different suppliers that we work with.

Thanks, Jakob. Moving to the next question, please. The next question is going to come from the line of Andreas Joelsson at DNB.

Moving from the splendid operations to the buybacks perhaps. And if we assume that you make SEK 25 billion in free cash flow on a sustainable level, that is equal to the total remuneration to shareholders. So should we say that around SEK 45 billion is a net cash that you feel -- that you and the board feel is needed for the -- to run the operations?

I think as we mentioned there, the view is that it's important to have a solid net cash position. And we're coming out here with SEK 61.2 billion in net cash and the total distribution of around SEK 25 billion. And adjusted for that, we have given the business outlook that we see now, we see that it is a solid net cash position coming out of 2025.

Then when we come to next year, then we will have a look again, of course. But the capital allocation principles are there and that is guiding us also going forward.

And when you think about the business outlook, of course, you need to think about geopolitics, you think about whether it's the question before, tight supply chain, for example. And all of these factors reaches the conclusion that, that was the right level now.

And just as a follow-up, is there any thinking from the Board and from the management, given what you said before about growing EPS that you could -- that you would like to have a more long-term buyback program and making sure that you can achieve that?

I think this is the first time, Ericsson now announces buyback program. So it is clearly a part of the toolbox for the Board and the AGM and for the shareholders to decide upon.

Yes. I think you would also say, Andreas, that it's intentional that is launched as a buyback program and you also know the mandate for those are reviewed annually by the AGM. So this will be our hope and ambition and what is that this will be a recurring thing. Then the size will vary, of course, depending on how the outlook looks like.

Thanks, Andreas. Moving to the next question, please. The next question is going to come from the line of Sandeep Deshpande at JPMorgan.

My question is on the market in mobile networks, overall. Has the market changed at all? I mean, we've heard about the EU restricting some of the high-risk vendors, but at the same time, you are seeing a greater price competition in Latin America. Maybe Börje, you can make some comments on how this market overall is playing out in the world given the geopolitical situation?

Yes. If you -- a way to think about it, Sandeep, is we look at this market for the last 2 decades, right, and it's been flattish. So we like to think or plan for that type of market outlook. If it gets better, then we have a strong cost competitiveness, we get operating leverage. If it gets worse, we need to review that assumption, right? But that's kind of the way we think about the business.

Then, of course, it varies what happens. So over the last few years, and I think we spoke about this a couple of quarters ago that we saw increased competition in Latin America, we see it from time to others in other parts of the world, Southeast Asia, Africa, et cetera. So that kind of comes and goes a bit.

The thing that could be a positive is, of course, the high-risk vendor discussion in the EU. That's a sizable opportunity. If you think about the -- it's -- I mean we don't know exactly, but call the high-risk vendor market presence in Europe to be 1/3 to maybe up to 40%, but around that as a guideline, that would be a sizable revenue opportunity for trusted vendors.

So that could change. At the same time, it's -- now it's a proposal. It has to go through the process. So this is something that's probably going to take 12, 18 months before we really know the impact. So we're not factoring that in. But of course, it is an upside opportunity. And of course, it is, I would say, the toolbox, the EU discussed or implemented quite some time ago, which is 5, 6 years ago, has been not been widely adopted. So it is a change in stance with the current proposal.

Thanks for the question, Sandeep. Moving to the next question, please. The next question is coming from the line of Sébastien Sztabowicz at Kepler Cheuvreux.

On Networks, how do you see the mix trending in the coming quarters? We are now seeing some stronger growth in Africa, Southeast Asia and lower deployments in the U.S. and maybe also in Japan and Korea. So just curious about the mix trend in Networks. And also at a broad level what would be the puts and takes to your gross margin in the coming quarters? Where do you see some upside or downward pressure?

I think single quarters will vary. But if you look a little bit on the underlying for '26, North America on healthy investment levels in the market. So -- and that we expect to continue during the year. And then when it comes to growth opportunities, there is an investment need in India and also in Japan, where we have also in both these markets, ensure that we have a good, solid market position.

So when the customers decide to invest, we should be able to capture on that. Europe, rather stable. And then there are -- we will see what happens in Latin America. There is opportunities there, but still quite tough competition for sure, parts of Southeast Asia as well. So I think that's a little bit the balance act.

In Africa, we have had a couple of good quarters now with 4G and 5G rollouts and modernization activities. And hopefully, we can see that continue also going into this year. So that's a little bit the balance act on the market mix. And then the puts and takes, there is a cost pressure in the group, in the flat RAN market and continuous cost pressure on us both in the people part, but also in material cost so that we need to continuously work with.

That's why we talk about then somewhat higher elevated levels on restructuring, both -- that will impact both, so to say, OpEx, but also in the cost of goods sold. So that is necessary to offset this upward pressure on costs. So that is some of the puts and takes. Then you have the normal product mix, but that will vary between quarters as always.

Thanks, Sébastien. Moving to the next question, please. Next question is going to come from the line of Felix Henriksson at Nordea.

It's relating to IPR. I think in the report, you called out that you had a contract expiring with the Chinese smartphone vendor at the end of 2025. So I just wanted to ensure whether or not there are other significant contract cliffs in 2026 that we should be aware of? And as a quick follow-up to that, what is your level of conviction in being able to grow the SEK 13 billion annual run rate in IPR going forward?

Yes. Normally, we try to give you that guiding point around the run rate coming out of the year, around SEK 13 billion. When it comes to the contract, this is not a major impact. And we always -- when we negotiate, renew contracts, we are targeting the best economic outcome and that we will do as well this time. So that could be some impact here, but that is then normally coming back with a renewal. So it should not impact the full year, so to say.

And then potential upsides are there. We are in settlement negotiations with one of our licensees. So that is hopefully coming into place this year. And then there is the underlying opportunities around the pure smartphones when it comes to IoT, automotive, et cetera, that should support growth coming into this year as well. So that's a little bit the balance -- the pieces that will drive some opportunities.

Thanks, Felix. Moving to the next question, please. Next question is going to come from the line of Ulrich Rathe at Bernstein.

My question is on the bigger picture of the revenue outlook. So you're guiding for a flattish market and highlight the growth opportunities in mission-critical and other areas. And now in the fourth quarter, you delivered mid-single-digit organic growth, which is taken with some excitement in the market today. Would you go as far as saying that something like mid-single-digit revenue growth is possible in a flattish run market with the growth opportunities in these new opportunity areas that you're highlighting? Or is this maybe a bit of a phasing effect here? I think you highlighted in particular in CSS, the delivery phasing. Just wondering what your bigger picture here is?

I think to -- if you think about it from a little bit longer-term perspective, and it's going to fluctuate, right? But the size of the mission-critical market and the enterprise opportunity as well as 5G core that contributes here, 5G core, by the way, you should remember, it's only about 1/4 of all networks that are upgraded to stand-alone today, so there is a rather sizable opportunity there. So when you look at those outlooks, those individual pieces, they are large enough to a drive pretty nice long-term growth. It's not going to be double digits, as you say. So that -- take that out, but it may be low- to mid-single digits.

And I think the -- that's what makes me a bit excited is actually to think about it from that kind of at least some basic growth and you add on operating leverage on that, you add on what we're seeing on the enterprise that we're going to get that to profitability and you combine that with share buyback, you actually get a very healthy growth profile. So I think there is something here that I think from a little bit longer-term perspective is rather exciting.

Thanks, Ulrich. Moving to the next question, please. Next question is coming from the line of Sami Sarkamies at Danske Bank.

I have a question on your silicon strategy. Your competitor recently announced that they will start building products based on NVIDIA chips. We have also done some R&D work related to the use of chip use. What is your take on the situation? And do you see a role for NVIDIA in future RAN products?

We selected a strategy several years ago to basically disaggregate the software and hardware and actually allow our software to run on pretty much any architecture. And of course, here, we can run on, of course, the x86, but it can run on GPUs. It can run on our proprietary Silicon as well. And by the way, you could well see the TPU from Google. You could see what Qualcomm is coming with AMD, et cetera. So we wanted to be a bit independent of the selection of the hardware layer.

The reason for doing that was that we felt it was the right strategy to give the customers the opportunity to choose what hardware layer they want to run on. And you know today, there are operators rolling out cloud RAN. That's on x86. In the future, it may be different. So I think the -- I cannot comment on Nokia's decision, that's for them to comment on.

But from my point of view, I -- we wanted a very different strategy, not to select the infrastructure layer today, but rather do that as we come closer towards AI RAN realization and 6G, then we can make an intelligent choice together with our customers. And we feel good about that strategy, but that also means that we're going to continue to work with the x86 ecosystem and the GPU ecosystem.

Thanks for the question, Sami. Moving on to the next question, please. The next question is going to come from the line of Didier Scemama at Bank of America.

Sorry to come back to the point on memory and cost inflation. So I'm looking at your inventories, which are seasonally lower in Q4. You seem to suggest that you are -- you have adequate supply from new suppliers. So just can you elaborate a little bit? Have you signed like a 12-month supply agreement that makes sure that the pricing is not going to be a headwind to your gross margins? And -- or put it in a different way, what have you assumed in your gross margin in terms of cost inflation from memory over the course of '26?

I think margin -- inventory levels are coming down in the fourth quarter following the seasonality that we have, and that includes all inventories. So when it comes to that part, I think we are well positioned coming into the year when it comes to inventory levels on this kind of areas. Then of course, there is cost increases coming that we need to work with. But we don't share exactly how much that is, of course. But it will have some impact, but we will work together with our customers to ensure that we are, so to say, not stuck in the middle here, but there is an understanding that there is some sharing to be done here.

And sorry, again, to go back to the defense point, I think you sort of said, look, with the opportunities. Can you give us a sense of the size of your business today in defense? What sort of costs you're thinking about? Does that require any CapEx? Just elaborate a little bit so we've got something to work with.

Yes. I think you can assume -- we're not going into details exactly what our business is because we're working with a number of defense organizations. As you know, Ericsson exited all defense several years ago. So we haven't really had a presence. So today, we're working in partnerships as well as with defense organization.

So we're not going into details there. But -- and I think when you look at the overall sizing, the revenue opportunity, there are a number of consultants out there talking about the size of that opportunity. We -- and some are very big numbers. I'm not sure it's going to be that. But we think it's compared to the rest of the opportunity we have is sizable.

When we talk about it from an investment point of view, this is more saying that we will ramp up our presence in here and actually increase our investments. It's not going to be material compared to our overall SEK 50 billion we spent on R&D. So that's why we also say that it's part -- it can be -- well be offset, maybe not fully, but by the efficiency gains that we're going to do. So when you look at it from a total point of view, think about it as there is a big opportunity we will try to invest to get that. We're not going to materially impact our outlook with that. That's not the case. But we want to single it out as a growth opportunity.

And I think on your question there on CapEx, it's very, very limited.

Yes, that's fair. That will be -- you will not see that as a CapEx need.

Thanks, Didier. Moving to the next question, please. The next question is going to come from the line of Daniel Djurberg at Handelsbanken.

I have a question. If you could give any more color on the visibility in the North American RAN market in '26? Is it fair to assume a more back-end loaded year given some of your larger customers' spectrum asset holdings, for example, that could I expect to build upon in the latter part of the year?

I think it -- we don't -- I think we say that when it comes to the full year, we are coming out with healthy investment levels, and we expect that to continue. Then how it will pan out between quarters, it's actually rather, I think, difficult to say. It depends on what the capital investment needs that they have in different rollout phases, et cetera. So it's -- I don't think it's today, easy to say what will be the difference between the first and the second half.

No I think that -- we don't guide that way, we've elected to do it quarterly and I think that's why we do it quarterly. What I -- I do think it's fair to say that when we look at the North American market -- and by the way, this is actually a global phenomenon. But when you will hear, I think our customers talk a bit about being cautious on CapEx, the interesting thing is we also see a change in mix in our customers.

So we believe we're -- the active components are going to be needed because that's driven by the traffic growth and the need to go 5G stand-alone as well as new use cases like fixed wireless access. So when you see that, you actually see, call it a healthy investment level, even though our customers most likely will guide for a bit lower CapEx without knowing they need to guide on their own, but it's given signals that you can hear and it's pretty clear, they will be cautious on CapEx.

Thanks for the question. Moving on to the next question, please. The next question is going to come from the line of Andrew Gardiner at Citi.

Just coming back to a point you made earlier in your presentation regarding the performance that you've had over the course of 2025. Your profitability has improved noticeably last year. You've had 2 good years of operational cash generation. And so that is putting Ericsson, as you point out, in touching distance of the long-term financial targets.

That being said, these targets are some years old at this point. Are they still relevant and accurate targets for us to use in the market? Or given the changing state of your end markets and your strong execution, is there the possibility to do better, right? Do you have the ambition to perhaps outperform those somewhat old targets at this point?

I think it's right that they're old. We have not succeeded at reaching them, so that's a fair comment. But I think the -- we should remember, we also set the targets in a different environment geopolitically as well as business mix, to be honest. So we set them when iconectiv was part of our portfolio, we set them in a very different political environment. I think we -- I'm not too fan of changing targets easily. So we want to make sure that we reach that 15% to 18% first. Once we're solidly there, then I think we can start to talk about is that the right target after that. But right now, I think it's a good measure of what we should achieve with the current type of business we have.

Thanks for the question, Andrew. We just have time for a brief follow-up question from one of the analysts before we close. So if we can bring Daniel back in, Daniel Djurberg, Handelsbanken.

I would like to ask a little bit on the Cloud Software and Services. Sorry, if I missed the answer before. But could you help us to understand a little bit more on this impact of this large contract being in most -- in the quarter i.e., with the outlook comments on Q1 seasonality have changed to more of a similar view if the contract has been excluded in Q4?

It's a good question. Now as we said, we are coming out strong in Q4 here with -- and as you know, we have lumpiness when it comes to project deliveries, which are -- if you look at the full year, we are up around some 6% organically in Cloud Software and Services. And I think that has been a good underlying growth that we have seen, supported by the core business, and that is what we see as a healthy level coming into '26.

Then, of course, if that single comment would bring us back to normal, I think that's a little bit -- it would, of course, bring us closer for sure. That is true. And then we should remember, I think you have all seen that, that we have a significant currency headwind coming in, in Q1 year-over-year as a comparison that you will see currency rates peaked somewhat in Q1 '25. So that headwind we also are facing here.

Look forward to see you in Barcelona.

Thank you.

Thanks.

Thanks, everyone, for joining. That concludes the call.

Thank you.

Hello, everyone, and welcome to the presentation of Ericsson's Third Quarter 2025 Results. Joining us by video today is Börje Ekholm, our President and CEO; and in the studio, I'm joined by Lars Sandstrom, our Chief Financial Officer.

As usual, we'll have a short presentation followed by Q&A. And in order to ask a question, you'll need to join the conference by phone. Details can be found in today's earnings release and on the Investor Relations website.

Please be advised that today's call is being recorded and that today's presentation may include forward-looking statements. These statements are based on our current expectations and certain planning assumptions, which are subject to risks and uncertainties. Actual results may differ materially due to factors mentioned in today's press release and discussed in the conference call. We encourage you to read about these risks and uncertainties in our earnings report as well as in the annual report.

I'll now hand the call over to Börje and Lars for their introductory comments.

Thanks, Daniel, and good morning, everyone, and a big thank you for joining us today. So we delivered a strong Q3 with continued expansion in our EBITA margin despite the FX headwinds. I would say that reflects our execution against both operational and strategic priorities over the last couple of years.

We're optimistic about the growing demand for advanced mobile connectivity as AI is starting to be rolled out. By structurally improving our cost base, we have positioned Ericsson to deliver resilient margins, also in the current market backdrop, which will give further benefits from improving operating leverage when growth comes back and actually comes in reality.

Beyond operational improvements, of course, we focus on technology innovation, and that positions us well for the next key driver of our industry, the broader adoption of AI. As AI workloads move to the edge, demand on the network will increase significantly. These AI applications and AI devices will require wireless technology by placing, but it will also place new demands on the connectivity, such as ultra-low latency, high dependability, guaranteed uplink and very high security demands.

So best effort connectivity. Think of that as WiFi, 4G and 5G non-standalone will simply not be enough. So to cater to these new type of demands, operators will need to invest in and migrate to 5G standalone networks and later, of course, migrate into 6G. Their success here will depend on high-performing programmable networks. And here, Ericsson is a leader. And we're also seeing some front-runner operators now starting to realize new monetization opportunities of network slices as well as efforts to provide differentiated connectivity to different segments and different type of applications.

So now let me move on to some key financial and strategic takeaways before Lars dives into the numbers. So organic sales declined by 2%, but we saw growth in 3 out of 4 market areas with only the Americas reporting reduced sales following a particularly strong deliveries in Q3 last year. FX continues to be a headwind, and we had a negative year-over-year impact of SEK 4.2 billion this quarter.

As mentioned, we saw positive development in our margins. Gross margin came in at 48.1%, and we delivered another 3-year high EBITA margin of 14.7%, excluding the capital gain from the iconectiv side, and this is now starting to approach our long-term target. The margin expansion reflects actions we've taken over the last years to increase operational excellence and efficiency, including the work we've done on our cost base.

Over the last year, we've reduced our headcount by some 6,000, leveraging new ways of working, and that, of course, includes AI. As we plan for a flattish market also going forward, we will continue our cost measures on levels similar to what we've done in the past years. The effect of actions we have taken over the past years are now kind of flowing through the P&L and establishing the profitability at the new level.

Our continued focus on cost management will provide incremental benefits going forward, but it will also give operating leverage should the market improve. We ended the quarter with an elevated cash position, that's driven by strong recurring cash flow, but also, of course, the iconectiv sale. As a result, we see scope for increased shareholder returns through extra dividends and/or share buyback program. And the Board will revert with the proposal in time for the AGM, as you know, is the practice or is the Swedish governance model.

In parallel with strengthening the company operationally, we're continuing to execute on our strategy to capture a bigger share of the value created by connectivity. So let me expand that a bit further. In our core mobile infrastructure business, we signed new customer agreements in the strategically important Japanese market following our recent R&D investments. With Japan being one of the countries with a strong industrial base in such areas as automation and one of the densest networks that have still not built out 5G coverage, we see this as a key market going forward.

We also increased our share in the U.K. with an 8-year partnership with Vodafone-3 to supply a significant majority of the mobile networks and the entire core network. And this morning, we announced a 5-year strategic agreement with Vodafone in Europe for programmable networks, where we remain their primary vendor with more or less stable market share.

Within the telco market, new monetization opportunities are needed to drive more network investments by our customers. So we continue to execute on our strategy to create new use cases for mobile networks. For example, we're seeing good development in fixed wireless access, where customer satisfaction is typically higher than for fiber due to the ease of use of cellular or wireless technology.

In the quarter, we announced a contract with Bharti Airtel to support their fixed wireless access rollout with Ericsson's core network portfolio. And we're starting to see good traction in mission-critical including, of course, defense. We're also taking important steps in our strategy to create a market by exposing the capabilities of the networks through APIs. This remains one of the key opportunities for us to capture more of the value created on top of the networks. And as you know Aduna, our JV with the large operators for network APIs, closed this past quarter.

Revenues are still small, but we see the uptake in Vonage API business is actually starting to come through. And we see that in areas such as fraud protection as an early use case, but also in industrial applications. And today, we have already applications live in the market. Also, in Vonage, we're expanding our ecosystem partnerships with AWS and added marketplace presence and product integration.

So now let me comment a bit further on the market development we saw in Q3. In market area Americas, sales declined by 8% year-over-year with declines both in North and Latin America. This follows, of course, a very strong Q3 deliveries in 2024, where we had high deliveries to a number of large customers.

Latin America continues to be a competitive market with overall low investment levels. Sales in Europe, Middle East and Africa grew by 3% year-over-year. But if we look closer at the region, we saw a very strong development in Africa, partly driven by new 5G launches in Egypt and Morocco.

In both the Middle East and in Europe, sales declined, and we continue to see European customers being cautious with investments. In Southeast Asia, Oceania and India, sales increased by 1% year-over-year, and India continues to have rather low investment levels, but it actually grew quarter-over-quarter.

We saw a decline in networks, partly due to the low level of network investments in India, but also stiff competition in Southeast Asia. Cloud software and service, on the other hand, saw an increase in sales. Lastly, sales in Northeast Asia increased by 10%. That was due to higher network investments and deliveries in Japan.

In the quarter, we were awarded new agreements with customers in the Japanese market, including enhancement of SoftBank's 5G SA network, where we have clearly increased our market share. Overall, I would say that we continue to have good discussions with all our customers in Japan.

With that, I hand over to Lars to go through the financials in more detail.

All right. Thank you. So net sales in Q3 totaled SEK 56.2 billion, with organic sales declining 2% year-on-year. Most regions grew, but North America declined, mainly reflecting tougher comparisons with a high period of customer investments last year. At the same time, reported sales decreased by 9%, impacted by a negative currency effect of SEK 4.2 billion.

Taking a look at IPR performance. Revenue declined by SEK 0.4 billion year-over-year, now standing at SEK 3.1 billion for Q3. It's worth noting that last year's quarter included retroactive revenue, so that skews the comparison slightly. The run rate coming out of Q3 is still around SEK 13 billion.

In Q3, adjusted gross income was SEK 27 billion, including a currency headwind of around SEK 2 billion. We saw an improvement in our adjusted gross margin, reaching 48.1%. And this positive development is a result of our cost reduction measures and operational excellence in both Networks and Cloud Software and Services.

Looking at gross margin sequentially, we held stable even though we lost a temporary boost from the Q2 IPR settlement. Excluding IPR, the improvement was around 2 percentage points. In Networks, this benefited from organizational effectiveness in the market areas with well-planned and executed service delivery. This helped also manage supply effectively and further optimize inventory. And in Cloud Software and Services, the improvement is mainly coming from services, where we are continuously improving our delivery performance.

On the cost side, we made steady progress. Operating expenses, excluding restructuring charges, dropped to SEK 19.3 billion, around SEK 2 billion lower year-over-year. Of this, about half came from our cost initiatives, and the rest is mainly currency. Excluding the iconectiv gain, adjusted EBITA came in at SEK 8.2 billion, up by SEK 0.4 billion, including a negative currency impact of SEK 1.2 billion. The EBITA margin was up around 2 percentage points to 14.7%. Behind this improvement is the good progress we have seen in terms of optimizing operations and lowering our operating expenses. Cash flow before M&A was SEK 6.6 billion, driven by earnings with net operating assets broadly stable.

Let's move to the segments. In Networks, sales decreased by 11% year-over-year to SEK 35.4 billion with a negative currency impact of SEK 2.8 billion. Organic sales decreased by 5%. We saw organic growth in market area Northeast Asia, driven largely by Japan, which Börje already mentioned. Europe, Middle East and Africa also grew, driven by Africa. Sales declined in market area Americas and in Southeast Asia and India. Networks adjusted gross margin increased to 50.1%, benefiting from cost reduction actions and operational efficiencies despite change in the market and product mix.

Looking at the right-hand graph, the rolling 4 quarters adjusted gross margin reached 49.9% and stabilized at the new level. Adjusted EBITA in Networks decreased by SEK 0.9 billion to SEK 7.2 billion, including a negative currency impact of SEK 1.1 billion. EBITA margin of 20.3% remained stable compared to last year.

Then moving to Cloud Software and Services, sales increased by 3% year-over-year to SEK 15.3 billion, which includes a negative currency impact of SEK 0.9 billion. So organically, sales grew by 9%, mostly driven by higher core sales across all market areas. Sales growth was helped sequentially by a softer Q2 as well. Adjusted gross margin came in very strong in the quarter at 43.6%, an improvement of 5 percentage points compared to last year. This was a result of the continued focus on automation, efficiency, commercial discipline and delivery performance.

And looking at the right-hand graph, the rolling 4 quarters adjusted gross margin reached 41.3%, a new high level. Adjusted EBITA increased to SEK 1.9 billion with a margin of 12.5%, supported by higher gross income, lower operating expenses and effective implementation of our strategic initiatives, including AI and automation investments and our commercial discipline.

In Enterprise, sales decreased by 20% impacted by divestments in currency. So organic sales were down by 7%. Global Communications platform declined by 9%, reflecting the decision to scale back activities in some countries last year. The financial impact of this is now largely behind us, so we expect Enterprise sales to stabilize on an organic basis in Q4.

Adjusted gross margin declined to 51.6% driven by the iconectiv divestment. Margins improved in both global communication platform and enterprise wireless solutions. Taking out the contribution from Aduna and iconectiv, which were divested in the quarter, adjusted EBITA landed at minus SEK 1.1 billion.

Turning to free cash flow, which was SEK 6.6 billion before M&A, a decline from SEK 12.9 billion in Q3 2024. So last year, our cash flow received a boost from a reduction of operating working capital, driven by the completion of large-scale rollout projects and lower inventories. Operating cash flow was SEK 7.9 billion in the third quarter this year, driven by earnings with net operating fairly stable. Net cash increased by SEK 15.8 billion compared to last year, of which around SEK 10 billion was from M&A. Net cash has now reached SEK 51.9 billion.

Next, I will cover the outlook. The outlook assumes stable exchange rates and no changes in tariffs. For Networks and Cloud Software and Services, we expect Q4 sales growth to be broadly similar to the 3-year average quarter-on-quarter seasonality. And as mentioned before, we expect Enterprise sales to stabilize year-over-year on an organic basis.

Next, then gross -- Networks' gross margin, we expect Networks adjusted gross margin to be in the range of 49% to 51% for Q4. Restructuring charges for 2025 are expected to remain at an elevated level and with a flat RAN market, cost out remains an important lever also for next year.

With that, I will hand back to you, Börje.

Okay. Thank you, Lars. So our Q3 report highlights our laser focus on both strategic and operating priorities. Our strong results are a reflection of the actions we've taken to structurally improve our business in the past few years. This, of course, includes both the work we've done to improve our cost base and the way we run the business with greater operational efficiency and commercial discipline. The results of these efforts are now clearly visible in our P&L, and we expect them to continue supporting performance going forward.

On the commercial side, we continue to strengthen our competitive position in mobile networks, and we're seeing good traction in key markets. This is a reflection of our technology leadership and the strength of our portfolio. And that has most recently been reconfirmed by both Gartner as well as Omdia.

With programmable high-performance networks, our customers are well prepared for the growth in AI applications by having the best network for AI traffic. Our Open RAN-ready portfolio includes over 130 radio models and our future-proof, hardware-agnostic software architecture that is AI native, support both our own silicon, Ericsson Silicon and third-party CPUs and GPUs and is already integrated with more than 10 third-party radios.

To put Ericsson on a growth trajectory, we're executing on our strategy to expand the monetization opportunities of the network. Here, we're taking some important steps, of course, including our work in fixed wireless access, mission critical as well as maybe more importantly, we're exposing to developers, the network features through network APIs to drive innovation. This will make it possible for Ericsson and our CSP customers to capture an increasing share of the value created from connectivity, which so far, as you all know, have been going to hyperscalers and over-the-top players.

Of course, creating new cases and new markets takes time, but we're moving from proof of concept into commercial deployment. And this is reflected in our Enterprise segment, which we expect to stabilize in Q4. We will continue to invest in technology leadership to ensure that Ericsson is leading in both its core mobile infrastructure business, by having the best network for AI, and of course, into 6G, but also leading the development of new use cases and new applications of wireless networks.

Looking ahead, we expect AI applications as well as AI devices to be increasingly the key driver of further investments in the networks. At the same time, we're facing a dynamic external environment with geopolitical uncertainty and the RAN market that has been flat for the last couple of decades. So we continue to take actions to structurally improve our business through rigorous cost management, including, of course, leveraging AI to change ways of working internally. This way, we're ensuring that Ericsson will continue to succeed across varying market conditions.

Before we turn to Q&A, I would like to say a big thank you to all my colleagues for all their hard work in making these results possible.

With that, let's open up for Q&A, and back to you, Daniel.

Thanks, Börje. We'll now move to the Q&A section of the presentation. [Operator Instructions]

Operator, we're ready to open the line for the first question.

The first question this morning will come from Andrew Gardiner at Citi.

So I wanted to follow up, Börje, on the point you were making about the sort of level of sustainable margins that you're achieving at the moment. Another quarter where you're at the top end of the guidance range that you provided back at 2Q. So just thinking historically, oftentimes when Ericsson would talk about gross margins, and in particular, talking to us in the financial market about what we could expect into the future, it was all about mix, and in particular, regional mix. But you've seen over the last year or so that regional mix has been dynamic, as you suggest, and yet you're still delivering pretty consistent gross margins quarter after quarter.

Should we be looking less at the regional dynamics as we look into 2026 and beyond? And if so, can you just help us understand what within the business, particularly around the cost-cutting and the product costs that you've now been able to get to sort of this sustainable level of gross margins regardless of whether U.S. is up or down or India is up or down. A bit more detail there would be really helpful in terms of thinking to next year.

Thanks, Andrew. Great question. I would -- if just I start, maybe Lars fill-in, but the reality is we've been working over a number of years to structurally improve a couple of things in the business. One is the way we operate our supply chain, clearly. That's been -- of course, COVID disturbed it a bit, but those improvements we've been working on for a couple of years. And the last, I would say, year, we've had more COVID free supply chain, and that has, of course, helped. And that's what you see now coming through. I would say that's one of the key part.

The other is on service delivery, where we have improved the way we operate internally by structurally taking out costs. All of these improvements we've done. In a way, actually, it takes out a bit of the mix dependency. We still have a mixed dependency on software, services and hardware in reality, but it's less so of a geographic exposure.

So that's why, when you look going forward, there is still a mix dependency for sure, geographic, but the underlying improvements are coming through in other areas, where we still have a bit more to do. I think we can be even better on service delivery and actually leverage automation much more, and we can, for sure, be better on OpEx, but that you'll see come through already, but I think we have more to do there, primarily by leveraging AI and changing our ways of working.

I don't know what you want to add, Lars?

I think you covered the full P&L pretty well. And I think, as you highlighted there, it is really the product mix in the market that can vary between quarters depending on share of software, hardware, et cetera, and that is driving customers moving more and more into our advanced products with the margins that will come. That is also making it more even between different regions.

Thanks for the question, Andrew.

Moving to the next question, please. The next question today will come from Erik Lindholm-Rojestal from SEB.

One question from me. So Börje, you mentioned some -- you mentioned Edge AI being a key driver to future network investments. And I just wanted to hear your thoughts here. I mean, is this something you are seeing in discussions with operators already today and that operators, they are sort of acting on? Or is this more of something you see in the coming years?

Yes. If you look at so far, most of the AI investments have in reality been in the data center part for the -- for developing and training models, right? We see the market increasingly moving towards inference. And that, I would say, is going to be much more latency sensitive. And therefore, it will start to move out towards the edge. And here, we're -- I wouldn't point to an operator that have done investments, but we're starting to see certain application demanding edge compute and edge AI or whatever you want to call it.

So I'm actually relatively hopeful that this will come through. It's not going to be next quarter. It's not going to be Q1, Q2. The amount of capital going into the big data centers, that's going to continue. But as applications start to pick up, I think the need for edge compute will be clear. So if you start to think about it, the next step is we've been smartphone-centric in the past. We may well move into other types of form factors. So think about AI glasses, that will require much more low latency performance to be really usable.

So as we start to see that coming through, and there have been some launches of devices that actually will require a new form factor and will require new capabilities in the network. So I do think this is starting to happen, but I would still say we take a bit of a prudent look at the market, adjust our cost structure to that prudent outlook, and then, when the demand comes, then we'll be well positioned to capture that through our technology leadership.

Thanks for the question, Erik.

Moving to the next question, please. The next question will come from the line of Sébastien Sztabowicz at Kepler Cheuvreux.

On Cloud Software and Services, your business has accelerated quite substantially in the third quarter with the ramp of 5G Core deployments in many areas. You still see 5G Core picking up again in the fourth quarter and moving into 2026, and is it something that could trigger some upgrades to 5G advanced in the coming quarters? And could it have some positive implication to your mix and gross margin in the coming quarters?

Do you want to take this one, Lars?

On the financials, then you can fill in on the 5G connection there. But I think when it comes to core, we see a good development there and have seen for quite some time, and that is coming through now when other parts of the portfolio is stabilizing here when it comes to managed service, et cetera. So then, as I mentioned before, also Q2 versus Q3, Q2 was a bit slow. So we got a bit of a boost in the growth rate here in the third quarter.

But having said that, we still see good development going forward also in managed services or in Cloud Software and Services, including then, of course, core that we highlight here where we are seeing good position, good reception in market. And to focus on stable, resilient network is very high among our customers. And I think we see that we have a good position there.

I don't know if you want to add more on top of that, Börje?

Yes, I can add. The one thing which is important is, of course, that the operators need to migrate to 5G stand-alone, and that is something that's going to be required in order to deliver the capabilities of 5G. So when we have spoken in the past of low latency, very high bandwidth, network slices, et cetera, it's all depending on being on 5G SA. And so far, it's, I would say, 1 in 5 operators or 1 in 5 networks maybe are upgraded.

There are a couple of big operators that have really solid 5G SA networks now, and they are also starting to realize extra revenues from network slices, from differentiated offerings. So we're seeing that they need to do that migration. And when it happens, it will help our business both in mid-band coverage, but it will also, of course, be in 5G Core. So the position we have in 5G Core is clearly today about leading, and I would say we stand to benefit from that migration that's going to happen over the next few years.

So I actually think in that sense, we can be -- we should be optimistic about the prospects. Still, we run the business based on more flattish assumptions. So we run the right cost structure and get the full operating leverage when growth comes. So a little bit of the explanation of the better margins in Q3 is actually the operating leverage we get from growth as well.

Thanks for the question, Sébastien.

Moving to the next question, please. Next question is coming from the line of Andreas Joelsson of DNB Carnegie.

I have a question on the cash flow. Börje, the CEO statement, you mentioned that it's a recurring cash flow, which is a phrase at least I have not seen before when it comes to Ericsson. Can you explain a little bit what you mean with recurring cash flow? Is it because of a better cost base that makes the cash flow less volatile? Or how should we see that recurring cash flow?

I could start, maybe. So that is -- the key is that we are a project business, right, and have been. And I think we have put more efforts into a couple of things here. One is to improve the cost base, so we have less exposure to that. We're also gradually changing the way we sell our product, and that will increase the portion of software revenues coming in different models and kind of advanced services also coming in different models. When you put all of that together, we feel more comfortable about the stability of our cash flow generation going forward. And therefore, we start to talk about the recurring underlying ability to generate cash flow, but it comes out of a couple of changes to cost structure and business model.

Thanks for the question, Andreas.

Lars, anything to add?

No, I think that comment is, of course, we will have that can be swings within 1 or 2 quarters, that is normal in the project business that we have. But as Börje said there, we are working actively to sort out. So we have more the terms and condition in a way that also support more solid cash flow and reduce volatility. So that is what we have been working with for quite some time. And I think we can see the result coming out of that.

Thank you.

Moving on to the next question, please. Next question is coming from Sandeep Deshpande at JPMorgan.

Yes. Can you hear me?

We do well.

My question is you're guiding to seasonal growth in both networks and the CNS business into the next quarter, but also flagging our increased uncertainty. Does this mean that if there was increased uncertainty that there will be a change to this growth in the fourth quarter? Or -- and which is the areas in which this increased uncertainty is coming from if there is incremental increased uncertainty that you're pointing to? Or it is just ongoing uncertainty?

When it comes to the guidance for the fourth quarter, this is what we see now coming into the fourth quarter. And as you know, for us, our business is very back end heavy in the quarter, so -- but this is still what we see now. And when it comes to increased uncertainty, it's not so much maybe in the quarter per se, but really a little bit long term. There is an ongoing discussion on tariffs, as we all follow that could impact us or our customers, et cetera. So I think that is more what we are pointing to that area.

So do you mean that if the increased uncertainty diminishes that your -- you should do better than normal seasonality in the fourth quarter?

No, that is not what we are saying. We are pointing to the reality that we live in.

Thanks, Sandeep.

Moving to the next question, please. Next question is coming from Daniel Djurberg at Handelsbanken.

Congrats to a stable report. Yes, coming back to recurring changed business model on Cloud Software and Services, can you share with us ballpark the percentage of revenue that you consider being a recurring nature or at least a large part of the 5G Core revenues that is recurring?

No, we don't go into those kind of agreements, but what we can say or share, so to say, but what we can see evolving here going forward, continuously, what we are doing is moving into more and more recurring, but also a model based on more connected to the utilization, which as utilization of networks increase also has an impact on our revenues. And that is maybe a little bit achieved from what we have had historically, where we had more kind of fixed price models. So I think that is also supporting our revenue going forward.

Thanks, Daniel.

Moving to the next question, please. The next question is coming from Jakob Bluestone of BNP Paribas.

I had a question on your OpEx. I was wondering if you could maybe give us a little bit of an update on what your sort of current thinking is in terms of OpEx evolution. I guess, second half or Q4, I think you previously said you expected better than normal sort of H on H for the second half, but talk to that Q3 now, which is pretty good. Just kind of any thoughts sort of around OpEx next quarter and also how you see that perhaps evolving a little bit longer term as well?

Yes. When it comes to Q4, I think what we say, we had quite a big impact last year connected to incentive provisioning there. And we -- that was sort of hurting or impacting the numbers there. But otherwise, it's rather normal seasonal. There is normally a bit of an uptick from Q3 going into Q4. So that is what we expect there as well this year.

And when it comes going forward, as we talk about, we live in a flat RAN market, that is our, so to say, planning assumption, and that means that we need to continuously fight with inflation coming through, including salary increases. And just to keep flat, we'll require further activities on the cost side. And we will do that also going forward that I think is also part of the outlook that we say that remaining elevated levels. And that work will need to continue.

And as Börje mentioned, we have -- just compared to a year ago, we are some 6,000 people less in the group, and that work will need to continue also going into next year.

Thanks for the question, Jakob.

Moving to the next question, please. Next question is coming from the line of Felix Henriksson from Nordea.

It's on the North American market. We see some increased appetite for mobile spectrum as witnessed by, for example, AT&T's spectrum acquisition from EchoStar recently. When you discuss with your local clients in North America, how do you expect this sort of to translate into RAN equipment demand for you guys in the coming years?

Thanks for the question. As you know, the spectrum is the lifeline of our industry and the -- what keeps it ticking, and it's the scarcest resource in the industry. What the strategies are of our customers, how to deploy that spectrum, I think they should answer. So I'll keep an answer more on the generic level. But this is clearly something that, of course, spectrum and spectrum free up is important for an industry.

What we've seen in other markets, typically, it depends on your spectrum portfolio. So how does it fit into your spectrum portfolio, is it adjacent to some existing spectrum? If it is, you can most likely use some of existing equipment. If it's actually other spectrum, you will need more hardware. You will need software upgrades.

And what we have typically seen in other markets is it actually drives CapEx in the total market because clearly, you're going to have more capacity, better performance of the network as you use more spectrum. And therefore, other operators to match that typically need also to invest a bit more. So overall, getting into a market where spectrum kind of is actually increasing deployed will typically help the total market and will actually help the customer experience at the end of the day.

So in this case, let AT&T comment on their strategy. But I think it is worthwhile also to say that we had, as you may know, no market share with DISH. So let's see where this pans out, but AT&T talks about their own plans.

Thanks for the question, Felix.

Moving to the next question, please. Next question is coming from the line of Ulrich Rathe from Bernstein.

Yes. I wanted to latch on to an earlier question on OpEx development. In the R&D spending, that's down 12% year-to-year -- sorry, year-on-year. You're highlighting in the report 3 percentage point effect. So that's still a very material cut on the R&D spend. Could you comment what measures you use to make sure that you're not underinvesting because there is, of course, in history in the industry, in the equipment industry of underinvestment and sort of result in competitive issues? How do you make sure that the R&D cutbacks don't lead you into that future?

I can just give you a comment on the financials first before you answer as well, Börje. I think you need to remember the currency impact on the OpEx that we have. And as I mentioned here in the beginning, we have around SEK 1 billion in currency impact, and that is, of course, also in R&D. So if you look at Networks, R&D spending, taking out FX is actually rather stable, whereas in Cloud Software and Service, we have done work last years to reduce in some areas in the R&D and made prioritization in the product portfolio, and we had some extra cost on the transition that we did within R&D in Cloud Software and Services last year. So they were a little bit elevated. So you should not see this as a big reduction in R&D spend actually. Then, having said that, we continuously evaluate the different parts of the portfolio, where we spend our R&D and make decisions in that.

Anything you would like to add as well on that, Börje?

Yes. Just to be clear on a couple of things. So yes, we have -- we -- to actually turn around BCSS, we needed to focus the portfolio a bit. So we actually said in a couple of areas, we're not going to compete. So those we have actually exited. That helps the R&D spend. It doesn't impact necessarily the output where you need to win, right? So that we've done.

Then, as Lars said, in a bit of cryptic, but the geopolitical situation has required us to shift resources a bit politically. That led to, as we went through that whole transition, that we duplicated a large part of R&D spend that have now -- we don't need to have that anymore as we have relocated R&D, so rebalanced R&D. So that actually is another part.

So yes, your question is well taken. We should always worry that to be competitive we need to spend enough to do that, and we need to really be competitive with the Chinese. So our ambition is clearly to benchmark ourselves there. So it's going to be their ambitions that drive our scaling of R&D. That's been the case for the last several years, at least during my tenure, and it will continue to be the case going forward. So we are not going to jeopardize technology leadership.

And if we feel that there is any risk, and that's a risk I don't see today, then we would, of course, need to reassess. But as I see it, this is a natural -- yes, the FX part you can take out, but the other one actually of removing duplication, that's been the key driver and something that was in the plans to do. Just don't -- you didn't want to talk about it until it was done.

Thanks, Ulrich. Thanks for the question.

Moving to the next question, please. Next question is going to come from the line of Simon Granath, ABG.

And so on CSS, it once again delivered a quarter with year-on-year growth and strengthening margins. Now, the rolling 12-month margin is at some 8%. So I'm curious to hear on what sort of ball tank levels we should expect in the medium term.

And then a question connecting to this, you continue to emphasize that 5G stand-alone is needed for the operators to fully leverage the networks. And with 5G, there has clearly been a mismatch between deployment of 5G stand-alone and non-stand-alone. But as we look into entering 6G in a couple of years, do you think that the matching will be better, and thus, the leverage of the networks?

Maybe Lars briefly first on the margin.

We have said to ourselves to work towards a solid double-digit margin in Cloud Software and Services, that is the first step that we are working on. And you can see here, in this quarter, you really see the impact on having a bit of growth on top and the leverage impact that gives together with continued tight ship on the cost side, it really pays off. So that is a continued work on that.

And then on the 5G SA and 6G question there, Börje.

Yes. The -- it's -- the 6G will most likely be defined in the next few years, right, with first commercial sales. Everybody talks about 2030, I think it will be a bit earlier than that. So having said that, I think it's important to keep in mind. What I do think is that the big change between 5G and SA and 5G SA is that with 5G NSA or non-stand-alone, the market kind of continued to sell 4G plus. It was the established business model of most operators around the world. So it became very natural to take that step. That didn't give -- and then use 5G almost as a marketing icon on the phone. But in reality, it didn't give the extra capabilities.

To get the extra capabilities, the operators would have needed or need to go to 5G SA. And I have no doubt that the new capabilities, call it, network slicing, call it low latency, quality improved security will be critical in applications over the next 2, 3 years that, that will require the operators to build out 5G SA. And by the way, when they have built out 5G SA, they will put themselves on the journey to upgrade to 6G when that happens.

6G will be much more AI cloud dependent. But actually, what you do in 5G SA paves the way into that world. And what's more important, by being in 5G SA, you create the monetization models that will be needed in 6G as well. So then you go through the, what I will call the business development portion and the changes in your go-to-market capabilities that you're doing during 5G and then you leverage that into 6G that will again provide better and stronger capabilities, but it will depend on new type of monetization. So that needs to happen.

Thanks for the question, Simon.

Moving to the next question, please. Next question is coming from the line of Sami Sarkamies at Danske Bank.

I still wanted to go back to the strong performance at Cloud Software and Services. I guess, you didn't call out any large deals, but were there any like positive onetime factors impacting third quarter?

And then thinking forward, can we assume that sort of the 8% run rate you've been able to achieve during the past 4 quarters? Is that something that you've been able to attain on a permanent basis?

Yes. In the quarter, in Cloud Software and Services on the question around, let's say, onetime items, I think it was actually quite a straightforward quarter. There's always a bit of product mix, et cetera, but it was, I would say, a normal quarter to a large extent. So that is on that.

And then the run rate, I think what we're trying to say is that we see that we have managed to increase our gross margins and keeping costs stable here and working -- continuing to work on that. That gives us a good foundation going forward. Then, we don't give guidance on run rate margins per se for segments, et cetera, so -- but I think we are coming out here in the quarter. And as you have seen the step-up over the last quarters, we have come to a new level that I think is good going forward as well.

The only thing I would add, Daniel, is the one big effect normally on the margins tend to be our IPR agreements, right? And that is nothing that impacts this quarter.

Yes. Thanks, Sami.

We'll move to the next question, please. Next question is coming from Richard Kramer at Arete.

I don't know if you can flesh this out at all, but you mentioned that you want to keep a solid net cash position. And while you're considering what to do with the SEK 52 billion you've piled up on the balance sheet, can you talk through what the parameters of a solid net cash position are? Is it a portion of your percentage of your OpEx? Is it something to do with the working capital demand? And can investors assume Ericsson will not be deploying some of that SEK 52 billion to M&A after your experience with Vonage?

When it comes to our net cash position, I think the message is that we want to have a solid net cash position, and that is foundational to ensure that we can maintain our R&D and our technology leadership, make sure that we have the trust of the customers. That is important that we as a partner with our customers have the financial strength to deliver long-term over the contracts and commitments we have together. So I think that is foundational for us.

And then, of course, if there are volatilities happening in the market, we should also handle those kind of movements. So that is not a change in that sense. And then also, when it comes to -- but we are coming to a position where we talk now about excess cash and that we need to manage. Also here, after now the divestment of iconectiv coming into our net cash position. And that is the signal that -- and the comment we do here in the report now that this is work that has been ongoing by the Board since that was announced at the last AGM, and that work continues. And I think there is a good work progressing.

We give the highlight here now in the quarterly report that we're looking at it. We're looking at the options of extra dividend and/or buybacks. But in Sweden, as we are a listed company here, the decision is made at the Annual General Meeting, which is taking place at spring. And normally, there is a proposal for the Board coming in connection with the fourth quarter report on that topic. So that's why it's coming at that stage.

And when it comes to your question around M&A as well, that has also not changed. We see -- we have the product portfolio we need to a large extent. There could be some bolt-on acquisitions coming to -- into the product portfolio when it comes to geographical spread, but no major ones. So that is also unchanged.

Thanks, Richard.

We have time for one brief final question. So one more question, please, into the queue. Final question today is coming from Rob Sanders at Deutsche Bank.

I just had -- I was just interested in an update on Germany. Given there has been some push to swap out Huawei and ZTE, there is this 2029 shutoff date, but there seems to be some resistance amongst the German telcos to actually go through with a full cleaning out of Chinese vendors. So I was just interested in just an update on that region, where clearly, your share is below what it is globally.

Börje, anything you'd add?

Yes. No, you're right. I would first say that there isn't a need to swap out Chinese vendors by 2029. So that you should keep in mind, that's why it's a slow moving. And I would say there is no real progress on that. But the legislation is rather clear that it allows high-risk vendors in the 5G network beyond 2029.

Thanks, Rob.

Thanks for everyone for joining us. That concludes the conference call today.

Hello, everyone, and welcome to the presentation of Ericsson's Second Quarter 2025 results. With me here in the studio today are Börje Ekholm, our President and CEO; and Lars Sandstrom, our Chief Financial Officer.

As usual, we'll have a short presentation followed by Q&A. And in order to ask a question, you'll need to join the conference by phone. Details can be found in today's earnings release and in the Investor Relations website.

Please be advised that today's call is being recorded and that today's presentation may include forward-looking statements. These statements are based on our current expectations and certain planning assumptions, which are subject to risks and uncertainties.

The actual results may differ materially due to factors mentioned in today's press release and discussed in this conference call. We encourage you to read about these risks and uncertainties in our earnings report as well as in our annual report.

I'll now hand over the call to Börje and to Lars for their introductory comments.

Thanks, Daniel, and good morning, everyone, and thanks for joining us today. So we delivered a solid Q2 with organic growth of 2% following the weak development the last few years and 3-year high in EBITA margin as we continue to demonstrate strong execution against both our operational and strategic priorities.

Milestones included a fifth quarter in a row of positive EBITA in Cloud Software and Services. And we continue to have the solid execution in Networks with good gross margin. We returned to sequential growth in Global Communication platform following the market exits, and Aduna has now signed up all 3 operators in Japan.

We achieved these results despite the fluid geopolitical and trade environment. And let me give you some key financial and strategic takeaways before Lars dives further into the numbers. So as I said, organic sales grew by 2%, with growth in market area Americas and in IPR and despite the temporary investment pause in India. We also saw increasing FX headwinds during the quarter, almost SEK 5 billion year-over-year.

As I mentioned, we saw a strong development in our margins. Gross margin came in at 48%, and we delivered an EBITA margin of 13.2%. And importantly, the margin improvement was broad based across all segments. And we see here the cost actions we took during the last year, and it's now flowing through the P&L, and we continue, of course, to take actions to improve our cost base, and that should also provide benefits over time.

While we expect the overall market environment or macroeconomic environment to remain in fluid or dynamic, we expect the RAN market will broadly be stable for the remainder of the year. For the RAN market to return to long-term growth, it remains clear that the industry needs new monetization opportunities.

To that end, we continue to execute on our strategic initiatives to create new use cases for mobile networks. The first major use case is fixed wireless access, now has more than 160 million subscribers. And more interestingly, the Net Promoter Score is often higher than for fiber. So to take full advantage of 5G, operators need to transition to 5G stand-alone networks because that will enable differentiated connectivity solutions. And it is now encouraging to see customers with 5G SA coverage, actually offering service innovation like network slices for mission-critical applications.

In addition to that, we see network APIs as one of the key monetization engines for the industry as well as for us. So far, revenues are small, but we see great interest in some initial API use cases such as fraud detection.

In the quarter, our joint venture, Aduna, expanded to all 3 operators in Japan. And with that, we now cover major markets with Aduna. In parallel to executing on our strategic priorities, we're focusing on strengthening Ericsson to succeed across varying market conditions. And that, of course, includes discipline on pricing and cost.

And this is, in this quarter, reflected in OpEx coming down from last year as a result of all the cost actions we have taken. And over the last year, we have reduced our total number of employees by about 6% or 6,000 while we had organic growth. And it's good now to see that actually coming through the numbers.

And we see opportunities to further reduce costs following the structural actions like the combination of 3 market areas into 2, but we also see and expect big benefits from the use of AI. And that's one of the reasons why we expect restructuring costs to remain elevated during the year.

I think AI could be one of the absolutely most important technologies we've ever seen. And for us, it's a key part in how we design and operate networks. So we're increasing our investments in the area. You might have seen this past quarter that we announced an AI factory consortium here in Sweden that will give us access to the latest chip and compute power.

As we look ahead, AI will be a key driver for traffic in the networks as AI applications move to the edge, and we see that this will require 5G stand-alone to fully support these new type of use cases. So for example, we're talking low latency and guaranteed uplink performance. So this, for us, I would say, is really a fundamental area. So it's critical that we continue to lead in AI.

So before moving on, let me comment quickly on the market development we saw in Q2. In market area Americas, sales increased by 10% year-over-year with good growth in North America, and that's, of course, encouraging as North America is often a front-runner market. Both Networks and Cloud Software and Services grew, benefiting from previous contract wins. The strength in North America was partly offset by lower sales in Latin America, where we continue to see intense competition from both the Eastern and Western vendors.

Sales in Europe, Middle East and Africa declined by 1% year-over-year. In Europe, sales actually increased slightly, supported by network modernization. Europe is also a market where we see high competition from all vendors. We're confident in our competitive portfolio and technology leadership, so we remain commercially disciplined as we approach the market.

In South East Asia, Australia, Oceania and India, sales decreased by 22% year-over-year. This was primarily due to the temporary pause in network investments in India related to specific market uncertainties. But South East Asia is also an area where we saw increased competition.

Lastly, sales in North East Asia declined by 15%. This was due to reduced customer investments in some 5G front-runner markets. But in the quarter, we have made strong progress on our discussions with customers in the Japanese market. In line with this, we also announced, and I think you've seen, that we will set up an R&D center in Japan.

With that, I would like to hand over to Lars to go through the financial details more in detail -- or the financials more in detail.

All right. Thank you, Börje. Let me start by giving some additional points to the group before discussing the segments.

Net sales in Q2 totaled SEK 56.1 billion, with organic sales growing 2% year-on-year. Reported sales declined by 6%, with a currency impact of SEK 4.7 billion driven by the strengthening of the Swedish krona against U.S. dollar and other currencies. IPR revenue increased to SEK 4.9 billion in Q2 from SEK 3.2 billion in Q1. The increase mainly related to previously unlicensed periods. The run rate existing in Q2 -- or coming out of Q2 is around SEK 13 billion.

The adjusted gross margin for Q2 came in at 48%, up from 43.9% in Q2 last year, and margin improvements were broad based across all segments, driven by IPR revenue, favorable product mix and cost-reduction initiatives. It's worth noting that gross income had a negative currency impact of SEK 2.4 billion. Compared to Q1, gross margin was slightly lower, mainly due to lower gross margin in Networks, which was expected and which I will cover later.

Operating expenses, excluding restructuring charges, stood at SEK 20 billion, around SEK 3 billion lower than last year. About half of this reduction came from cost initiatives, and the rest is mainly currency. Even with the currency headwind of SEK 1.4 billion, adjusted EBITA went up by SEK 3.4 billion, reaching SEK 7.4 billion. This improvement was driven by lower operating expenses and higher gross income, bringing the EBITA margin to 13.2%.

On the cash flow side, before M&A, we reported SEK 2.6 billion, which is down compared to last year. And last year's cash flow benefited significantly from reduction in operating working capital, thanks to the completion of large-scale rollout projects and substantially lower inventory levels.

So let's move to the segments. In Networks, sales decreased by 5% year-on-year to SEK 35.7 billion, with a negative currency impact of SEK 3.1 billion. So organic sales increased by 3%.

In market area Americas, organic sales showed good growth. Organic sales also grew slightly in the market area Europe, Middle East and Africa, and sales in the other market areas declined, with the most significant drop in India. IPR revenues also increased, supported by the settlement.

The Networks adjusted gross margin came in at 49.5%, benefiting from IPR licensing revenue, cost-reduction initiatives and favorable market mix, partly offset by tariffs.

Compared to Q1, margins declined somewhat in Q2 as expected. The positive impact from higher IPR licensing revenue was offset by less favorable market and product mix and, to some extent, tariffs.

Networks adjusted EBITA increased by SEK 1.2 billion to SEK 6.5 billion despite a negative currency impact of SEK 1.3 billion. The EBITA margin improved significantly year-on-year, moving up to 18.2% from 13.9%. This was driven both by increased gross income and the lower operating expenses.

Turning to segment Cloud and Software and Services. Sales declined by 5% year-on-year to SEK 14.4 billion, which include a negative currency impact of SEK 1 billion. On an organic basis, sales grew by 1%, with growth in market area Americas and IPR licensing partly offset by declines in the other market areas.

Adjusted gross margin came in very strong in the quarter at 43.2%. This was a result of a favorable sales mix, with a higher share of software and increased IPR revenues, but also the continued focus on delivery performance and commercial discipline.

Adjusted EBITA increased to SEK 1.4 billion, with a margin of 9.6%, supported by higher gross income and lower operating expenses and including a SEK 0.1 billion negative currency impact.

In Enterprise, sales decreased by 14%, and organic sales were down 6%. Organic sales in Enterprise Wireless Solutions grew by 5%, benefiting from higher product and subscription sales in enterprise networking. And Global Communications platform declined by 9%, impacted by the decision taken last year to reduce activities in some countries. We expect Enterprise sales to stabilize during 2025 on an organic basis, excluding currency movements and the impact of iconectiv, which is expected to close during Q3.

Adjusted gross margin increased to 54.9%. This was driven by the focus on more profitable market segments in Global Communications Platform and stronger product mix in Enterprise Wireless Solutions. Adjusted EBITA was minus SEK 0.5 billion.

Turning to free cash flow, which was SEK 2.6 billion before M&A, broadly in line with the previous quarter. And operating cash flow was also similar to Q1 at SEK 4.1 billion, with the benefit of higher earnings broadly offset by changes in other operating net assets.

Investing cash flow -- cash outflow was SEK 10.9 billion, reflecting investments in interest-bearing securities. And net cash decreased to SEK 2.6 billion -- by SEK 2.6 billion compared to the previous quarter. Dividend payments of SEK 4.8 billion more than offset the positive free cash flow in the quarter.

So next, I will cover the outlook. Global uncertainty continues with potential for further tariff changes and broader macroeconomic factors like currency and trade flows. This can affect customer behaviors and investment decisions over time.

With that in mind, turning then first to sales, we expect Networks Q3 to be below 3-year average seasonality, and this is mainly reflecting the mechanical impact of the higher IPR licensing revenue in Q2. In Cloud Software and Services, we expect sales growth to be similar to average 3-year seasonality in Q3. Both of these indications assume current exchange rates and no tariff changes.

Next, Networks gross margin. We expect Networks gross margins to be in the range of 48% to 50% for Q3.

And with that, I hand back to you, Börje.

Thanks, Lars. So our Q2 results demonstrate solid execution of our strategic and operational priorities. We continue to strengthen our competitive position in mobile networks and expect the Enterprise to stabilize during the second half of 2025, following Global Communication Platform returning to sequential growth. It's encouraging to see continued momentum in our strategy.

In our customer discussions, there continues to be strong interest in 5G stand-alone networks that provide differentiated connectivity. And we're seeing new use cases to monetize the network investments taking shape, FWA, defense, mission-critical, and we start to see different enterprise applications. And many enterprise use cases are now moving from proof of concepts into real industrial deployments. I would say this is exciting, but of course, it takes time to create these new markets. Ultimately, the exact timing of investment decisions will be in the hands of our customers, but we believe the mobile network market will remain broadly stable for the rest of the year.

In this environment, we continue to invest in technology leadership while also structurally improving our business through rigorous cost management and by improving working capital. This way, we're positioning Ericsson to manage short-term market swings and drive margin expansion even in challenging markets. At the same time, we remain well positioned for the long term and to drive growth in our business.

But before we turn to Q&A, I would really like to thank all my colleagues for their really hard work in making these results possible.

With that, let's open up for Q&A. So over to you, Daniel.

Thanks, Börje. We'll now move to the Q&A section. [Operator Instructions] The first question today is going to come from Sandeep Deshpande at JPMorgan.

My question is about your guidance on the gross margin in the Networks business. You're guiding to a pretty robust gross margin into the next quarter. In the second quarter, you had some positive impacts from the Lenovo deal that you signed in the quarter. So are you expecting to sign more deals in the second quarter, which helps the margin? Or is the mix shifting because of some particular reasons? I'm trying to understand the dynamics in the gross margin in Networks in the second quarter -- in the third quarter.

Yes. When it comes to the margin outlook there, this is what we see when it comes to the product and market mix that we have at hand now coming into the quarter, and it's not related to IPR. It's more the underlying margins that we see coming into the quarter. So that is what we expect.

So are you saying also that India will remain weak in the third quarter, even though it was weak in the second quarter?

I think the pause that we saw now is temporary. When it will start coming back, that, I think, is difficult to say. So we don't have too high expectations already in Q3 for India.

One thing that is not -- don't take this as an India comment. But the last few years, we've actually worked quite a lot on reducing the sensitivity on gross margin to different margins. And we're in a better shape today than ever before, which makes it a bit more also predictable in that sense. Then some markets may go up, some markets may go down.

Thanks, Sandeep. The next question is going to come from Sébastien Sztabowicz at Kepler Cheuvreux.

On the OpEx, it was a little bit below expectation in the second quarter. How do you see the OpEx trending in the rest of the year or for the full year? Are you still forecasting a flattish OpEx for this year? Or there is a little bit of a downside to the OpEx level?

Yes. As you saw, the result of the activities we have taken over the last year is coming through in the OpEx here now in the second quarter. So that we are happy to see. It takes time before these activities really come through.

When it comes to the outlook there, we see a similar level in OpEx in the first and the second half. Normally, we have a bit of a higher seasonality cost in the second half. So that is a little bit how we see it going forward. But as I said, it takes a bit of time before the cost reductions start kicking through into the numbers. So that's why we stay on this, sort of say, view upon the second half for the year.

Thanks, Sébastien. The next question is going to come from Jakob Bluestone at BNP Paribas.

Great. I was just wondering if you could just expand on any tariff-related effects during the quarter. You previously guided for 100-basis-point margin hit. Was that what actually happened? I didn't see a number. Were there any pull-ins? And I guess if you can give any commentary on what your expectation is for tariff-related effects in Q3 are.

Yes. When it comes to tariffs, starting with the pull-ins, as you remember, we had a bit of impact in Q1 with some pull-ins and impacts on the product mix supporting the margin in Q1 there. This quarter has been more normal, you can say. And as for the impact, we guided around 1 percentage point. We came out around this 1 percentage point a little a bit lower here in the quarter, and that is we expect similar levels going forward, given what we know today. And as you know, there are quite some messaging around the tariffs. So we will see. But based on what we know today, this is where we stand.

Thanks, Jakob. Next question today is going to come from Fredrik Lithell at Handelsbanken.

I was wondering if you could sort of describe a little bit more the trends in the North American market. We know since Q3 of 2024 that you started to ramp up with one of your large clients there. And the question is how this sort of project looks and how -- if it's going to sort of ramp down gradually or if it is so that the other big clients in North America are mitigating part of that or something like that. Could you describe that a little bit? Would be interesting.

All right. I got that one. As you might remember, we started seeing a ramp-up during Q2 last year. And then coming into Q3, it was coming up on a very high speed, so to say, and a high pace. And now coming this year, we are more on a stabilized good level on sales.

So the comps will be more difficult coming in, of course, in the second half of the year. But overall, it's quite a good pace. And America -- and North America is not only one customer. There are 3 customers at least. That is important, and they are all showing good investment levels here also going forward. That is what we see.

I don't know if you want to add more on the U.S. market?

No, I think you summarized it well.

Thanks, Fredrik. Next question is going to come from the line of Andrew Gardiner at Citi.

Another one on the Americas, if I could, just following up from that last answer, Lars. Can you give us a sense as to where you think the customers are in, I think, across all 3 main customers there in terms of the inventory replenishment? You clearly had a significant drawdown impact sort of late '23 through most -- through the first half of '24. Before, as you pointed out, the demand came back in the third quarter. Do you have a sense as to where their inventory levels are at the moment? Is there more to go? Or are we back at a more normal level?

And also in terms of the mix within the market, there's been a debate over, I suppose, sort of deployment versus swaps. Are you seeing the beginning of swap activity? Or is that something that we might start to see in future quarters? Just a bit of detail around that would help with the margin outlook.

All right. Yes. When it comes to inventory levels, I think among the different operators, they are fairly balanced as it looks now. They work a little bit different depending on which one, but based on how they operate, they seem to be fairly balanced. So that's good, you can say.

And when it comes to the mix in the revenue base, we will see more of services coming in into -- and rollout activities into the revenue base coming forward here. So that is a bit of a difference that we will see. But as I also have said previously is that we will have -- there can be shifts in the margins between different quarters. But when we look at more the long-term view here, we see rather stable good development here for the -- looking into the full year.

Understood. I suppose, I mean, as you point out, the mix may be changing a bit, but your gross margin outlook is still steady sort of 3Q from 2Q?

Yes. That's what we see. And then, of course, there -- we are an industry which is very project based and the product mix has an impact. But given what we see now, this is the guidance we give. And I think that is what we expect.

Thanks, Andrew. Next question today is going to come from the line of Andreas Joelsson at DNB Carnegie.

A little bit more perhaps future-looking question and the comments that you made on 5G stand-alone and the investments you do in AI. Just curious how you see that perhaps impacting your business in terms of product mix. And also given that you have now, as you said, never been in a better position when it comes to gross margin, how do you see this operational leverage going forward if we should see more stand-alone business or more AI-related orders from your customers?

If we start on the 5G SA, I think this is an important question, Andreas. And it's actually one of the key promises of 5G. We've been talking about the low latency, the high speed, the higher uplink, et cetera. All of that is, in reality, related to 5G SA. And 5G SA have, so far, had only limited deployments. It's about 1/4 of the operators with any type of 5G SA network.

And if you start to look at broad-based rollout, it's really one in the U.S., one in India. Of course, the Chinese, you have a couple of other countries with bigger, but it's, in reality, very limited rollout.

It's 2 things that need to happen in the network. One is mid-band coverage, so prepare the radio network with mid-band. As you know, that's still a very low build-out coverage in, for example, Europe. It's probably less than half pop coverage, 90%, 95% in the U.S., China, India. So Europe is clearly behind on that.

The second part is you need to upgrade the core. So that's another opportunity. And those 2 things will have to happen to take full advantage of the capabilities of the network. So what we're starting to see, and this is -- it's still, of course, early. But we're starting to see new type of devices coming. Think about the AI glasses. If you're going to have that, you need ultra-low latency. You need guaranteed low latency, and you need a very high uplink performance. So this is starting to drive the interest.

We're also seeing a lot of, I call them network slicing opportunities. So for example, police force wants to connect all their police officers and put body cams on all of them. They need actually a 5G slice on the network. And that, we see one of the customers delivering that. We see, for example, for sporting events, selling network slice with guaranteed uplink. And if you go to a concert today, you want to stream the show, you're actually going to run into congestion problems. By buying a network slice, you can actually guarantee that you can upload your video while you're there for example.

Consumers are willing to pay for these things, and we start to see them happening. So I'm rather encouraged by the service innovation that's starting to happen on 5G SA. Are we there to point to big revenues for us? No. But we're starting to see that interest, and that's going to drive need for more radio coverage, mid-band and core.

Then the AI side, I think this is such a fundamental technology. It attack -- or kind of. We interact with the technology in many different ways. So for example, if we start at the basics, we use AI, of course, as coding buddies, but we're also using it in other parts of internal operations to drive efficiency. We're going to see that happening. It's going to happen increasingly so.

We see some benefits now, but that's going to come more. Then it impacts also how the network is actually operated. So think about fully autonomous intent-based networks. They will require AI as a fundamental component. That's one of the reasons why we invested in the AI factory. So by having the compute capability, we can actually now start to develop those type of networks that -- so 5G network and future networks will be so complex, and you will need to be able to create dynamic slices in there. That will require fully autonomous networks. So we're convinced AI will be a fundamental part of that.

And lastly, it will be a driver of traffic because the -- today, all focus is on the LLMs and the compute and the data centers. That's all critically important. But another part of the stack is actually that applications, we need to move to the edge. And when the applications move to the edge, they will need connectivity, and they will need wireless connectivity. And that's why we work with a number of the device vendors on how the demands on the network will look going forward.

I want to link that also to Aduna and Vonage actually. That's going to be one of the critical applications for Aduna and Vonage. How you actually create that on demand, the network slice, basically an API-based demand, you create a slice for your glasses when you need ultra-low latency, for example.

So we see that quality of service also being interesting or increasingly important. That's why we now see the number of operators being signed up in Aduna, and we cover a number of countries around the world, most recent, Japan.

So I think we're still very early in AI in -- and how applications are going to start running. But I think that is actually going to be a key driver of our business going forward, both on traffic, on the way we operate networks and the way we run Ericsson.

A lot to digest.

Yes, I'm sorry about that. But it's a very exciting time we're in, I think.

Thanks, Andreas. The next question today is going to come from Simon Granath at ABG.

So now with the U.S. market perhaps normalized and as you highlighted in the report, Dell'Oro estimates suggest overall stable market, I had a question on what other areas you may boost your efforts in order to improve sales. And in particular, I am curious on what you're seeing in defense and 5G for such areas because you do highlight defense in your annual report but has not really talked too much about it recently.

So could this be a needle mover? Or what is needed for that to happen? And I think it also makes sense from a market share point of view that entities like NATO is unlikely to choose European operators with nontrusted RAN supplier, so that could perhaps also benefit you. What are you seeing?

Yes. I -- to comment on that, we're doing a couple of things. First of all, I think the potential is actually substantial. And the reason for that is, of course, also defense benefits from connecting everything. And 5G is the way to connect all your equipment as well as sensors, et cetera. So I think there is a big opportunity here for 5G technology also in defense.

We see that in discussions that we're having with -- in a couple of countries around the world, we launched last year, and I think that's what you referred to, EFTG. It's Ericsson Federal Technology Group (sic) [ Ericsson Federal Technologies Group ] in the U.S. That is a specific entity to work with the Department of Defense in the U.S.

Still, the -- I will say the revenues are small on those applications, but I actually think it's a good growth opportunity for us for the future. It's realistic to say that a large part of the increased defense spending in Europe most likely will be allocated to connectivity because that is a critical part of a modern defense force. So I think this is a very good opportunity for Western vendors, like you noted, because I think that, that will be far-fetched to think they will go with high-risk vendors. That's one part of the defense, right? That's a pure defense applications selling to Department of Defense. I think that's an important part.

But I would also highlight another area that, I think, has a major opportunity is mission critical. So far, many countries around the world have very old connectivity networks for police officers, first responders in general. We're seeing an increasing interest here in building out that coverage. And we are in big -- in many discussions around the world with countries of building out those type of new mission-critical applications. I think that's going to be a substantial portion.

I will say sales cycle there. We may say it's long on the CSPs. But the reality is the mission critical is typically a longer sales cycle. So as we land contracts there, we will, of course, disclose and talk more about it. But I think this is rather a big opportunity. And again, think about the real-time applications, the safety you can provide for firefighters being connected all the time when they're in a building or police officers having real-time connectivity with body cameras on. These are changing the way you operate first responders, and that's the interest we're seeing. So I'm actually -- I think this is a big growth opportunity that will be net additive to the market that we don't have today.

Thanks, Simon. Next question is coming from the line of Ulrich Rathe at Bernstein.

Just come back to Jakob's question on tariffs. I'm interested in learning more about what concrete measures you are doing at the moment in terms of mitigation. Is this essentially sort of low-hanging fruit at this point because the uncertainty is so high and you're not quite sure whether you want to realign your supply chains given the tariff situation hasn't settled yet and you're more or less waiting before you take far-reaching decisions?

Or are you already on the drawing board to really realign your supply chain for the kind of tariff changes that we don't know exactly but we know directionally? So I'd just like to know where your state of thinking is, what actions you have already taken or what actions you will soon take.

Well, I think when it comes to that, as you say, it is very much around the supply chain and the sourcing. And what -- we have not made any firm decisions given the uncertainty in what's actually going to happen. So -- but we are preparing to see how can we move, and that work started already last -- during last year at the end, looking at what opportunities do we have and how can we ramp up and ramp down in different parts of the world where we have production. So that is prepared.

And then -- but going into implementation, smaller changes we can do in the current structure. And then if there are investment decisions needed, that we will see depending on what kind of decisions are coming out finally at the end here. So I think that is the balance act that we're working on. So yes, preparing, but not any big investment decisions taken.

And I would only add, as you know, we already built a factory in the U.S., came online about 2020. So it's in the making. We kind of saw this coming in during the first Trump administration. So we built that factory, and that's fully operational now, gives us much more flexibility. So we are, in that sense, I think, trying to manage the impact with the manufacturing footprint we have. Anything more, we need to look at how the tariffs eventually will shape up.

Thanks, Ulrich. The next question today is going to come from Felix Henriksson at Nordea.

I have a question on your confidence in your ability to gain market share because if we reel a few years back into your latest Capital Markets Day, I think you stated that in Networks, you're targeting to gain 1 percentage point per year of additional market share. And now you're, obviously, with the AT&T deal, taking considerable steps forward in that operation within the North American market range. But looking ahead, what is the region where you have the highest conviction on that Ericsson can gain further market share in the RAN market going forward?

Yes. A few years back, we were all talking about high-risk vendors in Europe, right? I think that as it looks right now, that's not an opportunity. I think we need to be honest about that. And that's the way I look at it. So we look at the world, in a way, having a few big home markets, whatever you want to call it, but kind of markets where we really need to be strong. Clearly, the U.S., clearly, India, clearly, Japan, right? Then you can add some more like the U.K., Australia, et cetera.

But we are investing quite substantially to make sure that we are in a very strong position in those markets. And that's why you should see the investments in the R&D center in Japan, for example, as a way to create that local presence that allow us to have a stronger market position. That's what we have done in the U.S. We built a manufacturing site there. We established R&D there. We have done in India. As you know, we have manufacturing there. We have our big -- maybe not -- it's the biggest country for us from an employment point of view. It's not the biggest on R&D, but we have a substantial R&D presence. Now we're doing the same thing in Japan.

So I'm quite confident we can strengthen our position in those other 2 markets. We're already very strong in North America, but we can do more in India and Japan. We see those as critically important for the long-term success.

Thanks, Felix. The next question comes from Sami Sarkamies at Danske Bank.

Can you elaborate on the strong results at Cloud Software and Services? You had almost 10% EBITA margin in the second quarter. What is a reasonable assumption on the underlying level going forward? And then maybe also if you can update us on the IPR run rate following the Lenovo settlement.

If I start with the IPR run rate, coming out of the quarter here, we are at SEK 13 billion. So that is where we are on the run rate coming out of the quarter.

And then when we come to Cloud Software and Services, as you highlighted there, it is a very strong margin coming out in the second quarter here, supported by IPR and a very good product mix with a high software share. But having said that, it's also the continuous improvement that we have seen for quite some quarters in Cloud Software and Services. So that underlying trend that we have seen, if you go back a couple of quarters, that is what we expect going forward. And aiming at the double-digit EBITA margin here in the midterm, that is still there for sure.

I would only add there saying when we put in place the turnaround plan for BCSS, it had a couple of components, right? One was increase the software share, commercial discipline and take costs out. And I would say the combination of those 3, that actually drive the result today. Of course, we got helped in Q2 by the IPR, but you should look at that underlying as kind of the trend is actually continuing.

Can I add one thing on the IPR? And we may not talk enough about it. Most of the settlement, it's kind of divided in 2 parts. One is a settlement now and then a future arbitration. So the run rate will be more impacted by the arbitration than by the historic settlement. But where that ends up, we'll have a view, but we'll see where it ends up.

Thanks, Sami. That concludes the Q&A session for today. So with that, thanks for joining us, everybody, and thanks for your time today. Thank you.

Thanks, everyone.

Thank you.