Q4 2020 Telefonaktiebolaget LM Ericsson Earnings Call

Welcome to day, Ericsson's analyst and media conference call for the fourth quarter report.

He visual AIDS for this call. Please the low bar on T. W. W. Don Ericsson don't come forward Slash price all Ww you don't Ericsson don't come flow with flash investment.

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Thank you very much.

Hello, everyone and welcome to this Q4 call or year end call.

With me here today, I have our CEO Bud vehicle.

On our CFO Carl Malone day.

Before we start the call I would like to make this statement during the call today.

We didn't make any forward looking statements. These statements are based on our current cash.

Rounding assumptions.

Which is subject to risks and uncertainties the per.

Yes. It is oh, the actual results may differ materially due to factors mentioned in today's press release and discussed in this conference.

So we can encourage you all to lose about these risks and uncertainties in our earnings report as well.

As in our annual report.

With those words I would like to stop is caused by handing over the word to our CEO.

Please go ahead thank.

Thank you Peter So good morning, everyone and thank you all for joining us today.

Before I go into the year end performance in greater detail I would like to recognize our people.

And it companies one way, it's about the people and I think 'twenty 'twenty more than ever.

We as a company migrated to work remotely in March last year.

And our people really stepped up and delivered to all our customers with minimal so actually no disruptions.

We are also seeing some good progress on our base this for quite some time.

But with the financial performance for 2020, we can now say that we're through the turnaround phase.

And of course this turnaround is also.

<unk> contributes to the engagement on commitment from all of our people.

We have now reached a return on capital employed that 17%, which is above the cost of capital. So we can now focus our attention on growth as a key value driver of course, while maintaining financial discipline.

But let me now go through some overall conclusions of our performance during 2020.

The increased R&D has made our portfolio very competitive and cost efficient and this has allowed us to gain market share in many markets.

And we actually see market share gains from all competitors today.

We exceeded our year end financial targets for 2020, as well as our targets for 'twenty to 'twenty two about two years early.

We have delivered a strong free cash flow before M&A and actually if we look at our history. We see that this is the strongest free cash flow, we have ever had as a company.

We also completed the acquisition Oh Crazy low point during Q4, and that's an important step as you all know a per establishing our enterprise offering, especially targeting the rapidly growing demand.

Demand for wireless raws.

In addition, we started to invest in increasing our resiliency and flexibility of our supply chain and we really started that several years ago. We did that for other reasons. So no crystal ball on predicting a pandemic, but that have been critical in managing our customer commit.

Minutes during 2020, and we've been able to do that despite working from home and then they made love a pandemic.

The health and well being of our people has been at the front and center in how we have.

Made this a sense during the 2020.

One example is that we decided very early on to migrate to remote working.

Across the year about 80% of our workforce operating virtually.

And of course day impacts on the toll on the on our people cannot be ignored.

Per working remotely, but we are doing as a company what we can to support.

On the also about so are most affected by the pandemic.

In addition, we took a decision in early March not to apply for any government pandemic related support programs as we wanted to make sure that we drive the business out of its fundamentals and take the right decisions for the long term future of the business not impacted by any government support programs.

Grabs.

Yeah, I would put free.

For Mats and solid long term outlook. The board of Axon has decided to recommend the shareholders to increase the dividend to two crore on their per share and that's an increase of HAMP deal around 50, or I should say I guess English.

Yeah, so before going into each market area.

Just wanted to make some overall comments about the market.

It's it's now clear that five days increasingly gaining momentum around the world and we're seeing from draw on their countries to rapidly build out the five G networks as it is a platform to digitalize their economies.

But I think it's even more encouraging to see that the operators who has built out the good coverage are seeing an increasing ARPA and on balance a reversal of the decline over the last few years.

For Franco on this five G. It can be a source of additional revenues as well as S to establish the operator as a market leader.

This is actually not surprising as she was very similar to what happened when <unk> was rolled out where Franco on there so a higher ARPA.

Greater market share and low churn.

We have also seen many wins in the in across the market there, yes for our private networks for enterprises, which actually start to strength in our enterprise presence.

So some comments on each market area.

We saw strong growth for the northeast day Submarket area. This was not really driven by China and that is now the largest five markets in the world with clearly more than hundreds maybe on subscribers.

But we also saw gains in many of the all day markets in the market area.

Our continued strong momentum in five G drove a good performance in North America. This was partly offset by the.

The downward pressure on the the low silver managed services contract.

So the operator consolidation earlier in 2020.

We have seen our market share gains.

In the U S. But we have also seen breaking deals in Canada that will support long term growth for us.

In southeast Asia, So, saying, yeah on India, we saw growth driven by several countries, but the most noticeable Australia on India.

Europe, and Latin America, how debate on the mixed picture, we saw over on a positive growth in the market area, but and that was driven by the growth in Europe, which was partly offset by a decline in Latin America.

Europe the growth in Europe was driven by market share gains.

And Latin America, the decline really caused by the macroeconomic uncertainty due.

Due to the pandemic.

We also see that we so far have had limited five G rollouts in Europe.

And we are a bit concerned that Europe is falling behind the phone John Lewis in in China, Australia on North America on the Middle East.

Finally in Africa, we saw that.

And in the market area African and Middle East.

We saw sales declines.

That was really in a freak out related to effects of the COVID-19 on the macroeconomic uncertainties and in the middle East due to timing on customer investment decisions actually in 2019 that ended 2019 on a strong note.

However, we see Inc.

Increasing traction from our efforts to increase market share in the markets area and we expect that to be stable in the next few years.

Moving on to the business segments for networks sales grew organically by 20% driven by a five day rollouts and market share gains.

Gross margin was 43.5 per cent in Q4 up from 41.1% EBITDA before.

For the whole 2020 operating margin was 19%, which is well ahead on all of our targets of 15% to 17%.

I would say networks performance reflect our increasing technology leadership and strong five G portfolio.

Hum.

For two of them grew at 241 per cent from 38.1 per cent.

From a year before.

2017 at the start of our turnaround to today if.

If you do a like for like comparison, our gross margin has increased from 29% to 42 per cent.

The turnaround, where we continued to execute on the turnaround plan and our operating income for Q4 was positive and that actually is the best result, we've seen to date, which we view as an indication that our turnaround is on track.

Our cloud native five day core portfolio has a very high win ratio and.

We're going to start to generate revenues in the next 12 to 18 months ahead. So far we've only seen a R&D costs with this new portfolio. So we are encouraged by the traction we have unexpected to see revenues are coming here during the low gradually during the year.

Yeah.

So on managed services continued to decline.

Which is DCF result on the U S or the consolidation in the U S markets.

So some contract exits are in Europe.

However, gross margin grew to 17, 7% from 15.8% year earlier and full year operating margin ended at 8.1 per cent head of our <unk> range of $5 eight per cent.

We continue to invest in R&D.

And in the managed services to drive automation and AI that will help our portfolio to grow in the future.

Emerging business another sales grew in enterprise offerings, such as the Iot platforms.

Complemented by the acquisition on Crazy point that was announced in Q3 and closed in Q4.

Gross margin improved to 33.8% driven by operational leverage from growth and lower costs.

Cradle to points underlying business develops in line with plans and we are we continue to be encouraged by the customer reception and see good long term growth opportunities. However reported sales and costs were quite low point are impacted by purchase price allocations and we have also said that that we.

We'll have a negative effect on operating income.

Boswell percentage.

In 'twenty 'twenty one.

Or are they coming from amortization, but also probably invest ment in growing the business on until we start to see earnings improve.

With that I give the word over to Carl Thank you.

Yeah and.

Good morning, good afternoon, everyone here from Stockholm.

And let's then start to look at the P&L for the full year 2020.

And here you see that with an organic FX adjusted growth of 5% year over year net sales reached $232 4 billion.

Ah witness stand within the target range.

Feels maybe between 200 and taught them 240 billion.

And mainly driven by continued high demand for our five day portfolio in the Netflix business that are that grew by 10%.

Especially the hardware revenue grew strongly in the sense that well come to salt of the growing footprint that we see currently.

Northeast Asia grew by 13% FX, adjusted and North America.

Southeast Asia Oceania on India also contributed to the growth in <unk>.

In the year.

Gross margin not just for mm 310 basis points year over year to 46 and <unk>.

Good to say that we have improvements in all segments.

And thereby also clearly beating the gross margin ambition range free setup in 2017.

Operating income $29 1 billion, excluding restructuring and improvement of our.

7 billion or 32% over last year and this is.

If we adjust for the 10.7 billion charge related to SSD with Doj and in 19.

So this operating income then leads to an operating margin of 12 five.

And this means we reached and exceeded the 2020 target of operating margin over 10% that's very sad.

And again the main contributor to the improvement here with again the networks side of the business with a 19% operating margin for the fiscal year.

And absolutely key metric for obviously for me, but for all of US on the company is the free cash flow before M&A and this came out of $22 3 billion. This is a level we have not seen before.

And our earnings per Se. We also listed on this.

Diluted EPS came out that five point 26, Swedish krona also that's 11.

On a level that we haven't seen at least during the last 10 years, perhaps longer.

Our return on capital employed for the full year was 17% that's on increased from $6 seven.

Both these numbers include the cash position, but if we and this might be more appropriate to actually if we exclude the cash are there we're talking on capital employed wouldn't even have been at two per cent for him.

But let's have a closer look at Q4 our.

Next slide please here.

So in the fourth quarter net sales reached $69 6 billion.

On the organic growth of 13%.

Again, driven by networks that grew 20% based on this continued high demand for the five day portfolio.

The largest growth as you saw before in North East Asia, but also in North America.

Contributing with a double digit growth in NAFTA in South East Asia Oceania on India.

Gross margin here on a 50 basis points improvement of 46 also for the quarter.

And again also looking at the quarter encouraging to see that all segments improved year over year.

With the main contribution from networks.

Operating income down 11 billion excluding restructuring.

And then I'll break them out in 15.8 again.

Repeating myself, but net trucks also have the main driver with a 21, 5% operating margin net.

Networks segment delivered.

But I also want to special mention here again updated on services that actually deliver the best operating income to date the profit of possibility.

Cash flow of $12 8 billion weighted to come back to that a bit later.

But let's have a look at the trend on gross margin and protects the slide on here and and you can really see that.

On the result of execution of the focus.

You hit on this graph.

You see that he had the gross margin development over the years in distinct quarters, but also rolling.

And we have said this many times, but of course it is really the increased R&D investments that.

<unk> has been the main driver here for technology and cost leadership and also competitive advantage.

And gross margin improvement so if we break this down a little bit.

<unk> gross margin improved 200 basis points.

Following even better operational leverage digital services.

Improved during the year 420 bps to 42% with more software stack as a sense Manny.

Managed services improved.

Improved efficiency achievements improvement of 310 a day.

And lastly, emerging business on all day every then gross margin that improved actually 840 basis points to 28%.

And private point contributes here and maybe a just a side note as being somewhat personally involved in the in Craigs point as well on my side I'm quite impressed by the Cradle point leadership and.

Now we are full speed that with excellent collaborations with other parts of X on all sorts of great value.

Okay, let's look at the SG&A and R&D.

R&D came out the $10 5 billion, it's a slight decrease year over year.

Mainly following positive ethics and here of course, we have added not crazy point since November so two months of Crazy low point, both in R&D and also in SG&A, which is next year that came out at $7 4 billion on Sophie that's a reduction of <unk> eight.

8 billion year over year.

And this reduction is.

Mainly explained by less traveling left triton's cost and other external spend.

Also some provision release every other provision release for customer financing and also some FX support that that's important this number.

And all of these more than offset on the added SG&A from the acquired credit point.

We also show impairment losses on trade receivables here just to illustrate that that can really swing between quarters.

In Q4, we had a positive impact of <unk> 3 billion.

And this follows collection of high risk receivables from customers.

Did you say last quarter. This number was a negative point 2 billion.

And this is really to illustrate that day sites and will fluctuate over quarters based on our updated risk assessments and changes in exposure.

Collection from from high risk.

On the bus and so on.

Let's move over to cash flow and financial position.

As mentioned on our free cash flow before M&A in the quarter was $12 8 billion.

And it's really a result on a combination here of course increased profit levels.

But also then in combination with working capital efficiency.

Working capital days now is down to 65 and from 75 days a year ago.

And and I must say I believe we have rather impressive focus among the colleagues across market address based on Saturday that's on on the cash flow generation.

This brought our full year cash flow before M&A to 22.3, and that's I think we mentioned several times already on this call.

Although.

Free cash flow definition may have changed over time these things to be the strongest store east our strongest cash flow in the history of the company.

So this led to a net cash at the end of the year on $41 9 billion up from 34 in house.

And gross cash and landed rather flat at 72 billion and they stand in spite all acquisitions dividends pension trust contributions on loan repayments during the year.

And we will continue to execute on our capital structure throughout the day for flexibility and resilience that's been described before.

And in that context also I'd like to highlight that we were of course very pleased with the rating upgrade we got in November from standard and Poors to investment grade Triple B minus stable outlook.

And the key trigger for the upgrade there on in writing Australia free cash flow.

So on a result of growth reduced cost on improved capital efficiency. So now we have it.

That's been created right things, both from standard and poors on pitch.

Maybe you mentioned the board said dividend proposal already just to add that this means a $6 7 billion a two could pay it out on in two equal installments, just like 2020, and a preliminary told by respectively.

Okay I will round off now just a few words on planning assumptions and I'm just going to highlight a few of them, but as usual. Please refer to the report for the full set.

And first of all on the markets we operate in then.

Usually fight that all and we will do that now that's why on the Lora I expect around market to grow by 3% and 21.

Up from 2% previously.

Oh, it's China up 4% North America, 2% on Europe up 3%.

And regarding topline done historically Q1 is our weakest sales quarter and if we look at the last two years normal seasonality or average seasonality has been minus 24 per cent from Q4 to Q1.

And this Q1, we are we expect that this seasonal effect might be somewhat less pronounced due to the five day investments on rollouts that are ongoing.

IPR importantly, as you know from the press release in December.

Ongoing renewal negotiations on all the factors that we mentioned on the release.

We may see an impact on operating income by between one and one on a half billion per quarter for Q1, specifically, we expect that that impact to be at the higher end of this range.

Networks segment, we expect a similar mix Q1 to Q4.

Thanks.

The decrease from Q1 to Q4 to Q1 due to seasonality.

And I want to point out again have with large variations between the years.

Also want to remind about the ethics rule of thumb and then finally, a reminder, that we expect to Craig's point Kasper you mentioned to negatively impact group operating margin in 'twenty, one and 'twenty to 'twenty two by around one percentage point.

With that thank you so much on back to you our CEO Mr. Gary at home.

Thank you Mr. Karl Malone.

Yeah.

We are.

Proud of the over performance during 2020.

But I would also say we're not happy at all as we see a lot of improvement there he has in the business.

And we run the business focusing on driving the long term margin improvements and growth and we really see the target for 'twenty to 'twenty two as a milestone.

<unk> play on the way to reach in the long term targets of 15% to 18% EBITDA margin.

'twenty 'twenty one.

It will be on investments here are with investments that will underpin our long term growth as well as our long term margins.

And this includes such areas as IPR Cradle point, but also continued investments in the business.

And as we have gone through already in December we announced that we have important IPR negotiations on renew wells ongoing that will impact Oh that will deferred revenues.

For periods of time.

Where we are.

He is that we are through focusing on maximizing the long term value of our portfolio can actually significantly improve our IPO on revenues.

We will also continue to invest in R&D to broaden their product portfolio and maintaining a strong customer offering but also driving a further improved cost position.

We do note that created a point, we will have a negative effect in <unk> 'twenty 'twenty, one primarily due to amortization, but also investments in growth and we also see that day in order to further strengthen our platform and.

We continue to increase our investments in compliance, but also security.

What we have also seen during the last few years that the value or the increased footprint is clearly paying off in expanded gross margin and that's something we intend to do to capitalize on our very competitive portfolio and the current market conditions.

The effects from Covid and continued geopolitical uncertainty they of course remain.

But we believe we're well positioned to manage any potential effects with improved flexibility and resiliency in our operation and we continue to invest for further improving the flexibility and resiliency.

Five day is now a reality and we are a global leader with on the 27 contracts as well as 79 live networks.

Our continued presence in the largest fastest growing markets around the world.

<unk> are critical to support our technology leadership and supporting our long term financial targets.

I would also say that from an industry point of view, it's critical that we hold together the global standard and not fragment that because they go by the time that has actually allowed the world to connect the 8 billion subscriber on to one uniform standard.

We are increasingly seeing that many countries are accelerating the investments in the five day network as they see the innovation on top of the network can easily create value. That's five to 10 times the network investments and allow them to transform and digitalize their companies.

To leverage this new platform.

We hope that Europe will see this value as well before we fall too far behind the more aggressive countries some phone on their countries.

We are committed to the targets for 2022.

As we have said, we see 'twenty 'twenty, one is an investment year that creates a very strong platform for future growth and for reaching the long term targets of 15% to 18% EBITDA margin.

We're confident in our ability to do so based on our strong underlying performance and resilience in the business built during the turnaround on visible and to find out should perform multiple twenty-twenty.

Thank you again for listening in and with that I hand back to Peter for all your questions. Thank you bought him. So operator, we can now open for the Q&A session and we will continue up to around 10 o'clock Central European time. So please operator.

Ladies and gentlemen.

At this time, we'll begin the question on session.

She would like to ask a question please press <unk>.

One on your push back and say if you would like to decline from the polling process. Please press your right Pete.

As always please limit yourself to one question on time and please keep your questions at a broad level.

Detailed information is provided in our report on Ericsson Investor Relations on media relations team will be happy to take additional cash and discuss but I think he tells me to you after the cool.

Thank you operator, the first question, we would have here from Alex on the protect from solicitation. So Alexander please.

Yes, good morning, I Hope you can hear me well.

Perfect.

Thank you.

So I just have one question.

On your 'twenty two targets on a very quick.

Follow up if I may start with the first question is you know given the strong networks margin do you have now can you explain why we should move cautiously model 'twenty two.

Obviously at the midpoint of your targeted margin, that's 200 basis points.

<unk> achieved in 2020, so you could tell us what's would drag these margins down.

Do you have strong market share ambitions and if you can quantify them or are you enjoying particular, two wins now that will disappear.

And if you think it's going to find out as well and then the quick follow up would be just on <unk>.

Oh, I see a lot of disparity in how we model this.

So maybe a good like.

Kind of a guidance on how many quarters, we should take the missing IPR out of your your bottom line.

That would achieve a more consistent consensus for 2021 in particular, maybe you would like to to give us a guidance and standard that can change island win on litigations resolved. Thanks, Gary.

Much.

And if we comment on target for 'twenty to 'twenty two.

You know we run the company not focused on 'twenty 'twenty, two but much rather on the long term.

So.

Have a clean result for for Q4, there's not really a.

And the specific tailwind in any way. So it's not that we think that is going to change. It's just that we see that we will continue to invest in the business in order to drive the long term margin targets of 15% to 18%. That's what we are focused on so.

So 'twenty to 'twenty two is it purely a milestone on that journey and we have not spent a lot of time.

Looking through the detail so 'twenty 'twenty two so you know view that only as a stepping stone to a much higher margin targets.

And so on.

On the I P R.

I appreciate your question on the I understand the difficulty.

But I would encourage you to think how long is the rope. It's very unclear. When you look at just the that pile. So.

You know, it's very hard for us to say, how many quarters. This will go on we have given you the guidance that it's about one to one 5 billion per quarter.

And we will update you as we move along on that journey.

But rest assured our focus its again not on closing a day specific quarter, but much rather on maximizing the net present value of our patent portfolio and that's what we will focus on not on an individual quarter.

Thank you Erik Sunday.

We will move to the next test and a dog.

The only do better from Oh, sorry.

From Handelsbanken, So please don't it.

Thank you very much a and b congratulations on this strong report.

I have a question on your near term funding assumptions you expect less.

But seasonality quarter on quarter on back on the strong side your momentum.

I was wondering if we should expect this when it comes to also to the North American market.

Coming up that would be great. Thank you.

North America, Thanks, Tony on them.

The momentum continues in North America.

It's been strong throughout this year and now of course, we also see maybe for you, but it's more of a long term net C band auctions have been completed as you know and that will.

Moving to investments in that spectrum band as well, but that's more towards the end of the year.

Short term I would say that the momentum will continue in North America on me.

We are a big part of the rollout casino floor.

T O on stuff so that will continue.

Perfect. Thank you so much and then we'll go back to the queue.

Okay no debt on it.

Thank you and we will move to the next question is from Alex Duval from Goldman Sachs Hi, Alex.

Yes, good morning, everyone and congrats on the robust results I had a couple of quick questions. Firstly, you've talked about market share gains from all competitors.

I wonder to what extent cannot continue this yet on what are the key functional attributes your product. They rely on this in the past you've talked about ease of rollout in things like dynamic spectrum sharing them on.

I wondered if you could talk about what would be the key factors and the extent to which you can maintain or extend your lead.

Others will want to catch up.

So it looks like North America, and China as being key drivers of growth this year as we can.

Just trying to send you one on it seems like you're talking about market growth for the European market. One day, what you've seen in Europe that gives you that confidence given your comment just now that that could be a risk that Europe could be lagging behind others on what a telco, saying to you and to what extent do you see <unk>, helping to underpin the digital economy in Europe.

Many thanks.

Yeah.

Ill start with the market share gains.

I would say well what we see now is the deployments of our deployments in the field.

When we can make comparisons and we clearly have a very strong performance.

Which I think is the key driver why we see this.

Attractiveness for our customers. They are there things are we have.

Invested over the past few years in improving our.

Call it close to your T cell costs.

The total cost of ownership for our customers and that of course is it's a important.

Aspect when they look at you know.

Our product compared to competitors.

And of course, we have over the last few years shown that we deliver on on the roadmap commitments we have made.

Which made the customers also appreciate the.

The road map, we show, but also of course, our ability to execute on that so I would say, where we're seeing days.

Hum.

Or are these gains now happening in several markets around the world.

And.

I think it shows the investments we've made.

We have made for a long time in R&D and we increased in 2017.

If you look at Europe why were.

You know you'll hear us be a bit more upbeat is really that we see the the market share gains, it's more driven by the market share gains than the general market growth.

For our outlook in Europe.

What we're hoping for is of course that we will start to see some some more five G. Rollouts on a bigger scale in Europe.

During 'twenty 'twenty, one, but that would further underpin growth in Europe.

So most of what we're seeing so far is really attributable to share gains.

And of course share gains that you know you cannot expect to continue forever right. So.

So it is really important that we started to see the market come back to an underlying growth.

For the long term, but.

But we think you know the migration to five G E.

Inevitable, it's attractive for the cross who may cause.

Kind of generates value for the end user.

But it also addresses the cost position from growing data traffic in the networks so that day.

They see some migrations that will happen, it's more we see that in all other markets. So we believe it's likely to happen in Europe as well.

Okay Alex.

Thanks.

Thank you and then we'll move to the next question, which comes from Sebastian on Stubhub, which from Kepler Chevron.

Yeah, Hello, and thanks for taking the question one pushing in China could you. Please me, making a date on this market.

Do you have any I didn't do it.

Ongoing shift when do you expect the referrals from do tenders and a quick one on the low coupon on shortages affecting them.

On the street.

Seen any impact so far and who do you see the institution.

For your specific stipulation and Sophie <unk>.

So your second question was about the supply chain.

And Brian shortage component shortage.

Net component shortly.

It worked well.

If we start in China, there are continuous ongoing tenders there so far.

We're seeing some of you know.

I will read the press like everyone else. So we see what goes on there.

But in addition, we've possibly seeing some hesitation on uncertainty among our customers, but so far no significantly impact that the wall and we continue to drive the business for Bud.

And we believe our customers would like us in the network and we see that kind of overall moving along at a quite good way and.

As I said before China nice aggressively rolling out five day. So we are you know it is.

As an important market for us to be present in four more from a technology leadership point of view than possibly the volume.

But we are we're continuing to invest in and see.

So no reason to not do that.

If we look at the.

The supply chain and Youre right.

The semiconductor market is rather tight.

But you May also remember that we took decisions are already in 2018, two in a way day call strict hour whatever you want to call. It the removal remove as much restrictions in our supply chain and actually create more supply chain flexibility.

So we are not seeing.

Any effect now we can continue to supply our customers with what they demand and.

If the current conditions continue for four years. So of course, we're going to have issues as well.

But right now we feel very comfortable about our delivery capabilities.

Okay Sebastian.

Okay.

Thank you we would move to the next question comes from Peter all of it at the Swedish TV.

So please Peter can you hit on it.

Yes, Thank you very much Mr. Erik.

I would like to ask you about China.

You are gaining market share then widen scope there.

On the tool.

What happened after the 20th of October last year, when this would support it.

To close out on Hawaii.

Yeah, It's really as we said that we continue on Youtube.

See you on demand in China will read the press like you do.

But we continue to invest in the business and we have so far.

North Sea and air.

Any material effect on the business.

Yeah.

Okay Peter.

Yeah.

But all.

All you can do another question.

Sure.

Yeah.

Have you.

Have you taken any.

China is because of what type of loans.

We are continuing with what we have done and we just went through that is that we have invested in flexibility on resiliency in our business.

That's something we have continued to do during 2020.

And that allows us to be flex it benefits them on that's a different type of implications that we can see in the business.

Being this question being out of the question. So that is something we are continuously doing but otherwise.

Basically it's contained news and we'll continue to invest in the business like we always have.

Okay Peter.

Okay.

Thank you we move to the next question. The next question is from ourselves autonomy.

Credit Suisse.

A low of Sean can you hear us.

Yeah, Hi, good morning, everyone tanks on the.

Question on point.

A couple of questions first on.

On the competitive landscape.

When we think about Uh huh.

While we are getting are restricted from a number of countries that piece still falling behind on Friday.

What is the situation when it comes to telco operators trying to find alternative suppliers be Samsung.

Have you seen Samsung.

When you go for these five EBITDA in Europe are you seeing Samsung coming up as a credible competitor.

Long term and then secondly on the open ran situation on.

Obviously theres been a lot of talk about open ran especially in Europe.

On a number of telcos.

Come together and formed an alliance so how.

This will position Ericsson is in that open world environment opens on the environment in the future and how should we think about the change in your business model.

If and when open ran stocks to get.

Max will be adopted.

Yeah.

On your first question I think it's it's you know it's fair from our point of view, where we're focusing on the Ericsson, we're focusing on that business.

You know the how the market looks on our our customer looks at different vendors I think that's a question better asked to them than to us.

So so that is I think a little bit hard for me to address what I can say is that it continues to be a competitive markets around the world.

And you know what.

Dave.

We've seen them.

Some then those be aggressive on price driving price discussions et cetera.

But I think overall, it's no change compared to how it has been in 28 day 90, and then on 2020, so that that kind of it's a general.

Call it background to the whole industry. So so I think you can rest assured that the them.

The markets will continue to be competitive going forward, but.

I know there on the discussion on on open ran on and.

You all know that the.

We have also jump in on the Empire net.

Increased openness on cross industry collaboration as a way to speed up innovation.

So so for us.

Where we're involved in open on where one of the key contributors in there and you know the work and in that for them.

But at the same time, we see right now that speed Tomorrow, Daedalus wireless price price performance results.

Integrated solutions will continue to be a majority of their network deployments for for the coming years.

And you know this is in reality driven by the two large areas in North America as well as in China.

Where they are pushing ahead on the on deploying five G. Now.

So you know that.

So when when kind of open roundness and that the architecture is going to be truly competitive I think it's a bit hard to address right now, but it's not a near term question. We don't see it really ready for prime time, except for some you know low performance applications.

Or segments in the market.

I think it's dead here the day.

Scott sooner to be especially here in Europe should be shouldn't we drive for but on five G networks now on otherwise if we don't do that we are exposed to the whole industry in Europe to fall behind due to the disruption that actually happened in the consumer market on.

On <unk> that will now happen in the enterprise market with <unk> and <unk>.

That's a more healthy debate to be had in Europe, what can we do to speed up the deployment.

Thanks, Jeff Thanks, Bonnie.

Thanks, John then we'll move to the next question. The next question is from Chris from Seb Good morning on them.

Good morning.

Two questions if I may the first one and tag along on previous questions on competition.

I mean two of your competitors are struggling are based on the product side do you see any irrational price.

Behavior in the market as of now.

And the second question relates to Opex.

Was quite low in the quarter as you say partly related to less traveling.

The the pandemic, but when do you when you plan for 'twenty and 'twenty one on your Opex do you assume some instead of traveling resuming and and things coming back to normal that they'll take they'll come off that day and leaving on a patent disputes on ethics aside or how should we look upon on fixing 'twenty 'twenty one.

Hmm.

Thanks Johanna.

When it comes to Opex going forward.

What we can say in general and you know where you don't really guide to specific layer on on individual lines and so on on the P&L, but if you look at 'twenty 'twenty, one opex, we don't expect any massive moves compared with the 2020.

But of course, we have we have talks about the thought on a number of items that are created to the point of course is outbid.

Two months on credit point in 2020 on of course, the full year 'twenty one.

And then we have talked about litigation costs are threatened in relation to the IPR.

Negotiations or in U S.

And so on so there are certain items like that but overall I.

I would say 2020 is probably a fairly good guide for 'twenty 'twenty one that's one.

When traveling will resume on to what extent very hard to say I guess, that's something that everyone in the world thinks about it.

I suppose a reasonable estimate is that we will not go back to pre COVID-19 travel level that it's likely to increase a bit from 2020 whenever.

Whenever we can say that we are out of the pandemic.

What are you doing any of those.

Se on travel that some parts of the world have traveled as normal.

This past quarter. So don't think travel is going to zero.

No. It is not then of course, we are still rolling out networks in the world and on some conscious definitely have.

Come on come out of Lockdown situations on so on so there has been on travel but of course on a very different level than pre COVID-19.

And if you look at then the question on competition there.

You know I would say the pricing environment is not that different.

It's been the se and pretty much throughout 2020.

So we've been able to to work in that environment on steel as you have seen an increase gross margins.

So there.

There there are some.

What I would label aggressive, possibly irrational pricing behavior in the market, but that's been throughout the year. So it's nothing that has really changed in the end of the year.

It's been there.

I don't know what to say, we've been able to to work in that environment.

Thanks to our competitive product portfolio, but also a very good cost per se. Some weird that we achieve by investing in R&D again to drive down the cost of the product so I.

I feel I I don't expect any dramatic changes in the market behavior going forward, but but it does of course has elements of aggressiveness, but that it always has.

Okay. Thank you. Thank you.

Thank you we'll move to the extra on the next question is from tier three several generic F. Kennedy I gave you.

Is that kind of growth.

I can hear you. This morning, good morning, John.

And thank you for taking my my questions again on the on the market share gains here you mentioned you take some from from all competitors could you elaborate a bit on on the regions, where you see the highest share gains and also if you can mention something on on order inquiries overall, which has not yet led to an order.

When so to speak as of the day beginning of this year as well.

Follow up on on all the discussion on the software part I see.

2% in 2020 up 1% from last year and has risen steadily can you talk about what you expect here in the coming five years.

Is <unk> 30 per cent realistic here. Thank you.

You know if we start with a lot of third part one of our strategies.

<unk> have been to increase the software content.

And so so that the east actually one of our focus areas. So we continue to do that.

And you know where that is going to take us at the end of the day, except that it's going to be an increasing portion as you have seen in the past and that will continue to increase.

We're we're we're consistently working on that and that's.

He is one of the key parts, which allows us to say that our target for a long term margin is going to be 15% to 18%.

That will be underpinned by a growing software content.

So on his question is market share gains and market share gains and then you know it's it's actually.

It's clear that we see market share gains in Europe that is what has allowed us to get back to growth in Europe. They are on.

Underlying markets, we don't see really growing so so Europe is a clear market share gain.

We are also seeing strong gains in North America.

Where we have a it is a part of the strong growth profile we've seen.

In the U S and we have share gains there.

With with with a couple of operating in both the U S as well as Canada.

We are also in the well publicized we have the market share gain in China as well. So we have the largest share or five day than we had on <unk>.

And so that is also driving our growth.

We're seeing an.

Increased market share as well in Australia.

We're seeing it day in.

Are there parts of Asia as well so so the market share gains it's not that it's really isolated to one market or one segment, it's actually across the board.

What makes us comfortable is also that we're seeing.

Are we comfortable with believing at least that we can strengthen our business is what we see on the.

Oh.

What I would say it would be pre order how your discussions with customers on deployment plans.

Chances to win additional market share.

So we see them.

Actually a very robust development there.

And that that makes us.

I believe that where we have a very strong position right now and we want to capitalize on that.

But but don't leave the question thinking that where it's an isolated market share gains that drove all of the snow it's actually much more widespread.

Okay pre attack were moved to three other could tell that it does get Bang theory can you can you hear me.

Chris.

Hi, Patrick.

You disappeared Erik.

Move to the next one.

Frank.

D M D.

Hello, Frank Good morning.

Good morning.

So.

Yeah, I think most of my questions have been partially answered at least so but if you could.

If you could help me a little bit about how to think about.

On the gross margins for 2021.

Are you.

I think you indicated that you are comfortable in general with your ability to meet price pressure for instance in North America on elsewhere.

With due to our investments in R&D that allows you to.

Due to continued too hard on them.

Reduce hardware cost and so on do.

Or do you expect that to continue this year.

On the second point a question.

Relating to this this is whether or not you expect a similar commodity mix and business mix. This year as you had in 2020. Thank you.

Good okay. Thanks, Frank.

Yeah. So on the gross margin side of course that our as usual puts and takes on you mentioned some of them yourself, including called stopped taking out cost out of the portfolio that will continue that.

<unk> plus has sort of course in R&D to accomplish that and you have seen are the historical development of our gross margin necessarily supported to a very large extent by that the fact that we are cost Oh I have a cost structure that is more and more competitive.

And that will continue of course, and then we have flagged that you know for certain things that will impact the next day or including the the IPR of course, which is also impacting gross margin. So we have to take that into account.

But otherwise I think we are where we're proud of the gross margin development. So far on them. We will certainly fight to continue in this direction as well in 'twenty 'twenty, one and beyond.

Thanks, John.

Lastly, I think you've probably heard the what's the second one.

Commodity mix for the full year, two they talked about that what's the customer right yeah.

But I think what we saw on the fourth quarter. When it comes to commodity mix is it's also about the hardware portion was large and that's as I I think I said before that's actually a very good sign because it's an evidence sort of result of gaining footprint.

Our net that we expect to continue on our fiber deployments continue so at least in the P&L.

The first half or so of 2021, we will see large hardware volumes being delivered on that that's a good thing and then.

Coming back to the last question there on software of course, that's the overall ambition to continue to increase the software share in our offering and that goes both for networks on and.

And the data services business.

Business as well as emerging business on other of course.

Okay. Thank you Frank will then move to the last question for this session.

Session that is something that we all have theoretically tell back yet.

You bet on creating Kenny himself.

Yeah, I can hear you clearly I hope you can hear me as well.

Perfect.

Just just a follow up on the market share gains sorry for pushing one more of those questions, but outside of Europe and in North America, where it is.

So that some operators also leaning more towards you and maybe a nokia instead of the Chinese can you see market share gains in more neutral aspects are you sort of on technology and technology aspects on total cost of ownership in other regions would be interesting to hear.

Sort of where you stand towards maybe your toughest competitor. Thank you.

Thank you as I said, we see market share gains across the board on it.

Isolated to individual countries, where there have been.

Restrict chefs.

So so I would say when you look you know there are a number of countries around the world, where we have strengthened our position on that makes us see that we gained that footprint.

Based on the technology, we can offer and it's still a competitive market. So it is Norway.

Grant did everything will go to us.

But we can see that we are having a disproportionate win ratio so.

That's why I feel very comfortable about our competitiveness of the portfolio not only from a product feature and roadmap point of view, but also from a cost point of view and that's equally important in a competitive market.

So you know you see on market share gains.

It may not be visible in numbers, yet, but it is in Africa, and Asia, and Latin America as well.

Okay. That's very clear thank you very much for that.

Thank you Henrik so thank you for all good questions today, but before we close the call on the body wants to have some final remarks. So please go ahead.

Well one thing Peter is different from you telling me that I have to so I just want to end by saying we were.

No.

Proud of the delivery and oversold late 'twenty 'twenty, we're not tapping.

That's because we see a lot of improvement there, yes, and we are continuing to invest in those improvement areas. So we are committed on on their targets for 2022.

A milestone to reach in the long term EBITDA margin target of 15% to 18%, where we're really investing and spending there for to make sure that we deliver with that thank you all for listening in and I wish you a great rest of the Friday on a happy weekend.

Thank you.

It's not completes our conference call. Thank you for attending you may now disconnect your lines.

Okay.

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Okay.

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