Q1 2021 Telefonaktiebolaget LM Ericsson Earnings Call

And welcome todays webcast covering the first quarter of 2021.

With me here in the studio and since I have our CEO, Barry <unk> and our CFO Carl Malone there great.

Great to see you here.

I guess you'd been working quite a lot from home recently.

It's great for the ERP there yes.

Everyone knows.

We migrated to work from home more than a year ago. So this is reality for the fifth quarter of reporting.

And so of course it takes a strain on the organization and on a personal note I must say I am immensely proud of all day.

You met the Ericsson underway, we have stepped up and actually deliver their own customer commit non stop before them. So we're just in a very very challenging environment. So I don't know Jeff start by acknowledging that a lot of people to work toward share.

You called you'll have actually not close your fist quarter remotely.

Fantastic that's true and.

Not only ask are you said, how we deliver to customers and so on during this period, but also all the internal processes work really well and so yeah. We close the books in the same time as we were shutting in spite of everyone working from home. So I saw your pride that boy, you're actually in a good great people.

Great.

This presentation and then we will have a Q&A session I'll start the presentation from from Bouygues Com.

And people that will ask questions happy to join the.

Conference by phone.

First I will just start by really think this text during today's presentation.

So you will be making forward looking statements. These statements are based on our current expectation and certain planning assumptions.

We saw subject to risk and uncertainties.

Actual results may differ materially due to factors mentioned in today's press release and discussed in this conference call.

We encourage you all.

So it really is about the streets and uncertainties in our earnings report for asking on annual report for 2020.

With that said I would like to listen to what to your door yet to start the webcast.

Thank you Peter and good morning, I welcome everyone to this.

Our earnings call of the first quarter. So thanks for joining.

At the year end results in January we could actually then show that we have finally completed our turnaround.

What we also saw was that now invested return on invested capital is actually higher than the cost of capital.

And that allows us now to focus on growing the business and as we said we are focused on growing in our core business cause it networks digital services as well as a non it services.

But we're also focused on building a enterprise business and driving growth in the enterprise space.

And during the first quarter, we continued to execute some day strategy.

And it includes as always investing in R&D for technology leadership and that is really giving us at the same time our cost leadership. So there is no conflict between technology leadership and closely then ship. They go hand in hand, and we had that we were able to strengthen our market positions.

Substantially and gain footprint.

Of course, the pandemic has meant a lot it has but it has also passed for digitalization.

It's a it's clear we have to recognize that there is substantial human suffering in the wake of the pandemic societies have closed down impacting their call no man.

Also we see the importance of high speed.

Internet connectivity and connectivity older one and that's where we come in and we're of course very encourage to see that the the process here of building out.

The strong coverage in the world, where we are a key contributor.

And we hope that we will see a part of the recovery programs around the world being allocated to high speed mobile broadband because ultimately that's a faster way to build out coverage.

Over the last few years I also want to say that we have invested quite substantial amounts in D constraining our supply chain.

That gives us increased flexibility you see in for example, the factor we've built in the U S. But we have also focused on increasing the flexibility in the other parts of the supply chain. So even though we're in a pandemic with a very tight supply chain. For example on semiconductors, we've been able to complete the old customer delivery.

Is on the committed timeframe seven according to schedules as well as running our internal operations. So a big kudos to the organization for that.

But let me jump into the business.

And we have continued to consolidate our per se as soon as market leader, even five G.

With 136 commercial contracts and 85 live networks in 42 countries.

What's also encouraging is that organically FX adjusted we saw sales grew 10% during the first quarter and if we actually add or adjust for the IPR revenues organic growth was 14% in our business.

So that is really driven by strong growth in networks that again, if you would adjust for IPR actually grew 19% in the quarter, which is probably fairly significant growth.

It's also clear we exited the quarter on a very good footing I feel very good about 2021 and.

We had a strong development in the second part of the quarter after a bit softer in the midterm.

Yeah.

Despite the reduction in IPR revenues that we have guided about.

We saw that the gross margin actually improved year over year to 42, 9%.

And that is for growth that we saw in all the segments. So gross margin strengthened across the board.

Oh EBIT margin was off to a 10.7%.

And that is despite significant costs to improve the business significant close to grow footprint as well as a negative currency movement.

And you know 2021 these older awarded an investment year for us, possibly more so in digital services. So we're here, we're increasing the investments we do in R&D to have a competitive five G cloud.

Cloud native portfolio, and we're making great progress, we see good traction with customers with many customer wins, but what's also clear is that we are incurring costs ahead of revenues. So we are seeing R&D expenses. The increase we're seeing cost for new product introductions coming up while revenue so not to come.

Being out until later in the year I would say at the earliest in Q4, but we're really going to see revenue is coming in 'twenty 'twenty. Two so so this is a year old the investments, but it's a year of investments. According to the plan, we have put out for digital services.

If we look also on the cash flow. It's it's very strong day, if we adjust again for IPR revenues, which typically are paid a large part the majority are paid in the first quarter, so for where to look beyond that the underlying cash flow improved quite substantially and it's actually.

One of the best Q1, so we have been our history.

Yeah, we also invest substantial effort in making sure that we have an ethically responsible business and we conduct our business in a nasty cold way.

This is built upon an individual account to be lithium as well as integrity. So here, we are spending a lot of time in the organization to make sure.

Do we incorporate all lessons learned from the past troubles, we've had and make sure. We have the state of the art really great compliance program, but more importantly that everyone has compliance is an integrated part and the way day behave and in the way, we conduct business and you know.

Winning business, that's all what its all about but we are going to win business make sure to play by the rules parents square and no debate about that.

If we look at the market there, yes, we saw good growth in for out two five market areas.

Northeast Asia, we grew by 80%, which is really driven by the non Chinese markets primarily.

And if we look at.

The next one is southeast Asia, Oceania, and India, where we saw good growth.

Driven by five G in Australia, as well as for the rollout in India.

Oh overlay to touch more than 20 per cent.

Moving on to Europe, where we had good growth, 15% in Europe, but that was partly offset by more flattish development in Latin America I don't know of course, Latin America soft first from the pandemic and the macroeconomic effects for moving the top situation with the with the COVID-19.

So for them to look Manav had a strong development based on continued rollout of five G.

And there we see actually good progress also on our cloud native portfolio in digital services. So we had a growth of 10% more than 10 per cent organically.

And we've been able to to also strengthen our market position, which is.

Long term going to be very attractive for us. We also saw the completion of the C band auction. So we expect that to two <unk>.

Resulting deployments during the second half for the year.

And if we look then at our last market there, Yeah Middle East and Africa, we saw sales for a living by 16% that is really a effect of the pandemic in Africa impacting the macroeconomic under spend environment, but we're also seeing a slowdown in middle East following the large investments last year.

So you know one of the cornerstones of our strategy has been to grow our gross margin.

And it's a fundamental indicator of success or progress on.

One day focused strategy.

So it is encouraging that we continue to see our gross margin strengthen in the business.

And we are able to see that strengthening despite the lower IPR revenue. So mats real fact, we fully compensate for the lower IPR revenue are in.

In the gross margin development.

We're all and by growing gross margin, we can continue to sustain a very high R&D.

R&D expenses, and we're doing that in order to make sure that our portfolio is competitive from a feature for for them as point of view, but also of course competitive.

Yeah.

Of course, we continued to invest in the index high G M.

Rollouts and that's what we see benefits in our core business, but we're also seeing a very strong development is still strong demand for five G and enterprise applications. We're convinced here that we had the five day cycle is going to be a different cycle than the traditional.

Or more for the consumer driven cycle that we've seen in the past and we believe the five G side could we be both longer and bigger used for entering a complete new application area with enterprise applications.

Yeah.

What's encouraging is the progress we're making on our portfolio and in Q1, we announced the ultra lightweight type of for them as massive Mimo radio portfolio. We also continue to strengthen our position with our cloud run. So we are continuing to invest in technology leadership for the benefit of our customers.

Yeah.

Again, we have invested quite substantial amounts in making our supply chain resilience and that pays off right now.

A.

Good delivery performance with our customers and I would keep in customer commitments.

If you look at the R&D investments, we're doing in digital services has built a very competitive portfolio and they will continue at a high level because ultimately we are going to see.

The cloud native portfolio, you'll be an increasing part of revenues, but again, it's encouraging to see that the overall business currency adjusted and digital services grew by 3% in the first quarter.

Managed services. We also continue to do that and look to be growing gross margin, but we're also continuing the investments in.

Automation and AI in order to develop new solutions for our customers, where we see increasing traction that will over time change the margin profile of the business.

With that I'm going to give the word over to our CFO Carl Thank you everybody I'm plank here and good morning again, everyone. Thanks for your time.

So let's dive in a bit more to the numbers.

And you can see that our our strategy execution that you talked about are really show in our financials are here in the first quarter.

Our net sales came out at $49 8 billion, a which is a 10% organic FX adjusted growth for the group, mainly driven by by networks.

For the very high growth numbers as quoted by ability of course based on continued demand for our five day portfolio.

I pay our revenues declined by $1 6 billion year over year and do it for these expired contracts that we are negotiating for in your world currently.

And if we adjust for that again, the organic growth, it's actually up to 14% for the for the group.

If you say if you look at the rolling four quarter basis here. Our sales are now tracking at just above 200, and sucked it 2 billion Swedish kroner.

Gross margin at 42, 9%, which is an improvement of 250 basis points year over year.

And with the improvements in all four segments, which is very encouraging indeed.

Within both networks and digital services for me, it's all good operational leverage.

Contributing to these high I'm audience and despite the lower IP honest we've talked about.

And I think it's always good to look at the rolling four quarter basis for you showed it earlier that with gross margin income seen at 41, 2% steadily improving since a 2017.

Opex was a 16 day now Oh.

It's $15 seven as you see here on the table for R&D and SG&A SG&A was stable year over year R&D for such an increase about <unk> 4 billion.

This is a result of the increased investment we do now in the cloud Native five day portfolio in that day to test services mainly.

But also we have now of course incorporated credit that point the credit point based sensing Tau a number so that also added for them to them R&D investment are lying him.

So for some outstanding AR and EBIT.

All of the $5 3 billion.

This is a 10, 7% and and hundred 40 basis points improvement year over year.

And I wanted to point out here that we are changing terminology from operating income and operating margin to EBIT and EBIT margin.

And the main reason why we do that they stopped and we are now introducing EBITDA as you know for the long term target.

Speaking of which standard EBITDA.

On a rolling four quarter basis came out knowledge, starting 0.3 per cent compared them with a long term target for 15% to 18%.

So if we move from P&L and look a bit more at the cash flow how profits have been turned into cash.

Did you say you have a free cash flow before M&A at 1.6 billion.

And on a rolling four quarter basis, again cash flow free cash flow kind of south of 21.5.

She's done a nine 3% of net sales and we can also put that in relation to the long term targets. We have set up for free cash flow before M&A as a percentage of sales.

But just 9% to 12%. So we are in in that range here on a rolling four quarter basis.

A few words on our net operating assets I'll call. It working capital development in the quarter and we continue with strict discipline here and what we saw now in the quarter was a trade payables.

Affected cash flow negatively with about 4 billion. This is really the result of a decision we have made to derisk. The supply chain are in this situation.

To buffer up a bit.

Just on critical components.

But it's also an evidence of.

Yeah. That's we were handling the semi conductor situation and ensuring that we can meet customer delivery deadlines.

Three increased parking for the same reason, but also because we see a rollout products are going on and we're building of course, new radios to be delivered to customers in the coming quarters as well.

Trade receivables decreased a bit and that's I would say along with the seasonal pattern. After a very strong sales in the fourth quarter.

So.

Really wanted to point that out again, what you said regarding the free cash flow of that.

The majority of IPR cash payments incoming payments normally happens in the first quarter.

Now of course, having this renewal negotiations ongoing that cash flow did not come in.

And if we add that back then this Q1 is the strongest at least since Q1 2014, which was actually also it would be thoughtful of the ordinary because then we received large license payments in coming in that specific quarter.

So net cash.

Increased by $1 1 billion and in the quarter, bringing the net cash position of 43 billion as you can see here.

And during the quarter, we repaid 500 million eurobond, you can see that in the in the gross.

Gross cash we did this the cash on hand.

So now the maturity profile of our debt portfolio is three years up from two seven years at year round.

To round off with protect the next slide and just to highlight a few of the planning assumptions and as usual I want to refer you to the report for the fourth set of assumptions, but.

First of all look at the market that we operate in a.

The normal now estimates the ran market to grow by three per cent in 'twenty, 'twenty, one of which China, 4% North America, 2% in Europe by 3%.

And if we look at our own reality regarding topline to start with.

Historically, if we look at the three year average the seasonality on top line is plus 13% from Q1 to Q2.

And as you know, though and I really want to point that out that we can see a.

Large variations around this average number Henry I'll, let him.

And then in segments networks, we want to point out that the gross margin.

Can be negatively impacted by a higher share of rollout projects now, which we have in the pipeline for the second quarter.

And Moreover, when it comes to Opex, we have a certain seasonality between Q1 and Q2. So opex typically increase from Q1 for Q2 and also here a bit the word of caution that that can vary quite substantially between the quarters depending on timing.

I P R M.

In Q1, our IPR revenue was several points 8 billion.

And this volume we can say reflects very wet in the contract portfolio that we have so we can assume similar in the second quarter until.

And as we go along until the expired contracts are negotiated for renewed.

Lastly, then within digital services.

2021 will indeed be an investment year with.

Frontloaded cost and.

A majority of the revenues from the new fab two core contracts coming late in the year.

And now for the second quarter for these reasons, we expect a similar earnings level second quarter as the first quarter.

So with that thanks, a lot then I hand back to you Oh, yeah. Thanks Carl.

So to conclude.

The investments we've made in a competitive product portfolio.

Together with the cost position, we have have actually created a strong clouds for them to grow in our core business networks. They just for services and managed services, but it also creates an opportunity to accelerate our.

Enterprise applications business in developing new solutions for enterprise.

As we have said 2021 is an investment year, we're taking the cost for a crazy point acquisition, we're increasing our spent on compliance as well as securities. We're also increasing investments in the supply chain.

I would also say there is here in elemental or investments to gain the footprint that we have invested in this this quarter, but we are expecting to continue to do that.

Going forward, but I would also say at the same time that we're managing on the overall P&L level, but we have as we've been clear C&I investment to position ourselves even better for 'twenty to 'twenty, two and beyond in order to reach the long term targets.

What we also see as a very good order intake.

That we feel positions us very well for.

For the full year as well as for 'twenty 'twenty, two and of course, that's what we build the business progress for them.

And enterprise, we're starting to see a good progress on our five G. I O T offering, but we're also seeing that crazy point becomes integrated into our business and seeing the growth opportunities now materializing in the numbers from Crazy point, So that's encouraging to see.

Again, thank you all for joining this morning, and with that I give the word back to you Peter.

Thank you both so we will now start the Q&A session and I would like to welcome the operator across all do you hear me.

Ladies and gentlemen at this time, we will begin the question and answer session. If you'd like to ask the question. Please press star one on your per spot something huge like took their time from the polling process. Please press star zero.

If you're a streaming from the webcast to meet your wife Cosmo was asking the question to minimize for your feedback.

Let's see here do we have anyone on the call for questions.

Operator can you say on a run on yes.

Yeah.

Okay.

First question comes from Patrick <unk> from Carnegie. Please go ahead.

I'll pass it on time.

Hi, Good morning, all thank you for for taking my questions.

I hear you on your feedback here yeah.

So I guess you need to turn off your computer computer at the San Juan I don't know thank you.

Yeah, I I am on EBITDA or muted on the computer, but I'll I'll I'll just go ahead and that sense of time so.

On seasonality in Q4 to Q1 I think in the last quarter, you said the effect would be less pronounced nowadays more and.

And given your comments for you on very strong order intake as well it seems that there is a timing effect.

Shouldn't this seasonality effect would be less pronounced them from from this quarter to the second quarter and my My second question is on the margin side, which I mean, both the gross and EBIT margins there.

There undoubtedly quite impressive here, so up year over year, despite non itr decline.

Are there any temporary effects any any onetime capacity upgrades for anything that we should be aware of that lift the margin here or should we basically expect a higher base level going forward. Thank you.

If we start for the second part we have a we have spent in and you know that are focused on investing in R&D for technology leadership and cost leadership and that's really the key driver of the gross margin.

So it's a in that sense, a very clean and straightforward, but gross margin.

And based on the strength of the underlying business. What we see is that we're going to have the rollout networks like call described in in Q2 in networks that will temporarily affected the gross margin in networks, but the journey, we're on with continuously strengthening our gross margin that continues.

This is no change so really no major that sense, one time effects. So temporarily pulsative, we have though were very big negative, which is we have no or very limited IPR revenue says you know so that it's the the strong performance. This is despite that we feel.

Look at the.

You know the reality is our business, it's a bit hard to predict exactly when deliveries happened and deployments happen.

What we saw in the first quarter was a bit softer in the middle of the quarter and.

While it continues at a very good pace and the end of the quarter, So where we're calling for that but with what we're entering into but we're not going to change to seasonality pattern I think we're better off.

I'll say, what we see rather than trying to be you know detailed in our guidance.

Okay good for that.

Very good very clear. Thank you guys. Okay. Thank you I think we have the next question coming from Alexander Duval from Goldman Sachs Hello, Alexander.

Yeah, Hello, good morning, everyone and maintenance for the question it looks like the third party for Costa you referenced in your report spoke about three per cent ran market growth. This year I was just wondering to what extent you might see potential upside risks to market growth.

And if so you know what could be potential drivers of upside.

Just listening to your commentary now, but yeah, it looks like youre emphasizing potential for growth.

And clearly you've got a very strong order intake, obviously part of that speech of share gain.

But just curious if that could be some updates in terms of the.

The end market and then secondly, a quick one on Japan cleanly that scenario for strength in Asia.

I wondering if you could talk a bit more about how you're positioned on five G. In the country now versus what you saw in the for G cycle.

And should we be looking at that as being prolonged for few quarters many things.

Things like Sandler Yeah, if you look at the.

You know the overall market forecast.

Aye.

I would be remiss not to say that we see a very strong.

Market development over one.

And probably on the.

More pulsatile side than what the third party is kind of indicating a day lower those forecasts are indicating I will I think that's fair to say.

What we see driving our growth primarily is always share gains.

So so we do believe that we have made a.

Substantial gains in market share that started a few years back and actually have continued during the first quarter and we will now.

Stop but that we will continue to invest in our product portfolio to have the solutions that allow us to gain footprint.

In the Mark because we think that's important so that that that we would target to continue how the lora will revise their market forecast I really don't know, but I wouldn't be surprised if it's more on the positive side than the negative sides I'll put it that way Japan.

Japan, we have over the last two years gradually strengthened our position in Japan, and so for its a five day rollout has started but we think we have the big bulk ahead of US there. So we continue to work with our customers to make sure that day rollout.

Or have the products for miles to rollout in the market and.

Build their business. So we are where we see positive signs on the Japanese markets I would say a.

They are.

One of the phone drawn their market. Some five G. So I believe there we have to be strengthening our position and take advantage of them.

Yeah.

Right.

That's great. Thank you.

Most of the next question, it's from Alexandre <unk> from solicitation, although Alexandre.

Yes, good morning, and thank you for for taking my questions and congratulations I'm keeping the growth margins are at a really healthy level. So forgive me to focus a little bit on the on the name because it just like to understand the moving parts here. So for the first one on IPR. It just seemed at any 100 million per quarter, we're going to be at a run rate for the full year, which is gonna be.

A little bit below what you originally guided for I wanted to moving.

Structural change there or is it just a temporary falloff you do mentioned one licensee being no sorry, I wonder if that's due to geopolitical reasons or anything like that and then secondly, just on the second quarter are you you mentioned a 7% growth.

Quarter on quarter with lots of variations, but I'd just like to understand if there's a risk for a more to the upside or to the downside would you'd see Mexico as your seeds right now thanks a lot.

Yeah.

That's a clever way to ask the question for get more guidance by the way but.

Let's start with the other one non IPR and the reality is we have a.

You know contract renegotiation, it's with a couple of different parties. Those we are expected to impact are they.

They have also impacted.

But we also have one licensee that actually have significantly lower volume in the market and that results in much less royalty revenues for us.

And the weather.

Whether that you know to part partly of course, that's an effect of geopolitics. So you can safely assume that where where that will end up in the end of the year. We don't know, but that's the effect. We see so we are saying as a guidance going for but look at Q1 as a good indicator for the future right now.

Until we have the.

You know renegotiate didn't you contract terms are with and there are again several licensees were renegotiating with our in parallel so how about this exactly going to pan out for the full year.

We'll report on that I think I guess Q1.

We're not gonna be forced by either timeline or anything else to that extend to close early we will own live.

<unk> agreed to terms.

You know that that maximizes the value for us and not to send for news timelines. So that's why I'm going to leave it open on the timeline question Hmm mm.

Then on the seasonality you know.

I think that the best guidance is clearly to look at the history.

And then I I think what you'll hear US saying is that we see a very strong positive momentum in the business should recognize we had growth in the first quarter of 10%.

So Saint Lucie So now that it was the kind of gave you a fairly healthy growth in the second quarter as well but of course, we're very encouraged with the order intake.

The way, we see in the market now so you.

You'll have to make a bit of a judgment call it well.

We always nobody's fluctuations in delivery schedule deployment schedules et cetera.

But we're very optimistic about Q2.

Saturday Sunday for those questions.

Moving to the next question from Don as you about the Honda spanking and wanting to own it.

That's to our seller network performance and their for.

I was wondering if you could talk a little bit you mentioned about the network deployments in Q2 net to possibly could hit.

For some audience.

Would come to me I read this like you know potential.

Potentially launch for <unk>.

<unk> deployments in China that could pick up. So my question is really what kind of insights do you currently have on the current.

Karen on future volumes.

For the efficacy and they you know risk yeah, and the inventory because I guess you haven't needed to build inventory.

China deployments already.

Comment anything on this would be great. Thank you.

And the reality is you know the China market, where there was a big tender last year that we entered into in Walnut and increase market share.

Next 10 day will probably come in the next few months.

Bit unpredictable so with that you can't conclude that we have no insight into how that would look like.

These are driven by after market gain sexually.

Where where we see that we are going to have.

The largest share of Rollouts contracts are in the near term that's going to impact our Q2 in networks for sure.

You know, we shouldn't exaggerate, but what we're trying to say that that that portion is a bit larger than normally.

And the second question, Yes, you asked about the risk in the event that it now, but I would say no I mean, we have this business for serious shall of course, so assessed a day inventor and every closing and we would take the mesh us we have to given that the risks that we use that to a system.

But oh, yeah, it's nothing extraordinary nothing special that we deal with that as we go along.

Perfect. Thank you so much guys okay.

We will then move to the next question from Frank Malware.

The D M D.

Good morning, Frank.

Good morning, Thanks for taking the question.

And just wanted to clarify a little bit there on and off the last question also on China, We just actually one more.

My question was just relating to <unk>.

So my non mainland China, most was flat for you a year on year.

You mentioned the.

Tender the hope for all the company couple of months, where you don't have any particular insight on one but.

Exactly.

Could you repeat for this has both a portion being a bit larger than normally.

For the for me.

You mean the portion that's not.

Like do you expect all of the Rollouts in China.

I'm just reading my my question.

Given the optimal.

A further further to China do you see any any mix changes are almost so what's going on are going on in terms of the plants, though right. There's harm there I don't know about for this seems to be a certain.

Skewed towards 700 megahertz roll out there trying to radovan prompts mushmouth.

Mushmouth anymore this year.

Oh without the impact you are on your competitiveness and in any particular way.

In China.

Hum.

Finally, if I may Oh on the massive mimo profile second generation must be more and more products.

Thank you.

Mentioned could you give us some color on that has been received by our customers, who who also or and the other thing you know.

The the Chinese lessors are nothing more and more products, which which you know were pretty lightweight for the 64.

Excellent even EBITDA.

That was launched one year ago So Carl.

If you could give us some color on the reception there. Please thank you.

Yeah, if we if we start just to be clear day, the rollouts in China. During the first quarter, we don't see that to increase right. During the second quarter and we don't know anything about new contracts. So we thought John do you you must conclude that it's not China related it's actually other markets, where we see.

And that we will have large rollout or we know we will have large.

Rollout contracts in the second quarter and the proportion will be slightly higher so you need to think about them. The scale of that deployment. Then you will probably realize where it is.

Yeah, but that is going to impact them.

The impact of these notes.

Super large, but it's still going to impact and you know we cannot absorb quite a lot in our new cost structure. So with the cost structure, we have on products as well as on services. We can absorb those large rollout contracts, but we want to be clear that we see those are coming and they are you.

You know going to impact earnings slightly in the in the near term.

So very temporary but it's it's a very large size at the same time.

Then looking at China, Yeah, how the deployment schedule that is going to look like how to turn those structure's going to look like is unclear today clearly our competitiveness in massive mimo is good then the reception on our new generation of massive Mimo is very positive from customers and we're starting to see that.

The gaining increasing momentum and we will start to see that drilled out and then we're starting to roll down it would be rolled out in the next few months. So we're we're very encouraged with what we see and we do see the that the customers are putting us at a very good competitiveness with this new generation of massive mimo.

And I would say that.

No.

We clearly have a significant step on weight compared to where we were and compare to where competition was on there for them for generations. So we're very encouraged about the competitiveness.

Okay. Frank Thank you for for your questions.

We will move to the next.

Question from Sebastiano Stoneridge thrilling Kepler Chevron.

Yeah, Hello, Thanks for taking the question on digital.

You are running a business and they.

They live in a flow fees into the first time for for Ya.

The exhibition of your R&D investment and then John 95 G.

For you who should we think about that's been dean.

Sure.

And for background for for you do you see any.

Improvement I mean or should we assume that the improvements we don't need them by 'twenty, one 'twenty two and it would flow.

The contribution from could you remind us.

For safe and where you often dean.

Yeah.

You shouldn't if with them from <unk>.

If we start on the on the second one with the.

Samsung process, yes, we have multiple law suits going between the companies are in several different jurisdictions.

So so of course, it's very hard to comment on detailed loved up. So I just wanted to say that you know we're going to be focused on reaching a.

Call. It we are going to focus on maximizing the value.

Our IPR portfolio as much as we can and as much as we possibly can and that's what we're doing and I feel it's if it's in the it's in the interest of US as a company to make sure that we don't self imposed deadlines or self imposed restrictions on those.

Both litigation strategy, it's a negotiation strategy so.

Let's says when we have some material developments I E.

You know if we would agree for example of course, we'll update the market at that point in time, but making predictions here in self imposing constraints I think would not be right for our negotiating position.

So we're going to continue to run.

It's like we do and I apologize I know, it's a it's hard to be on the outside asking for information and getting nothing really so I I I recognize that then I I feel that pain as well but.

But we I think we have to run the negotiation and the way we do right now in order to keep our ability to negotiate.

Yeah, they did for us.

I think you're gonna take did you say that.

Most of US John Yeah. So you saw the beat on the digital services minus one in Australia and now in the first quarter I mean, I always say that it's going to be on a similar level for the second quarter for them.

Any sense that you could talk about with R&D cost and revenue since the five year contracts coming much later late in the in the year. So.

From that you can deduce that the second half will improve in.

For the fourth quarter is typically the strong clearly the strongest what did it for services also because of seasonality topline being at the highest.

So second half of course, that's our ambition clearly it's going to be better.

Better than the first half for it for those reasons.

Thank you Carl and thank you Sebastien for that down the road and move to the next question from Dominik Olszewski.

Morgan Stanley Dominic can you hear us yes.

Yes, good morning, everyone. Thanks for taking the questions.

So maybe a shorter term question and a longer term question. John showed a time, maybe you could just update us on your thoughts around the opex trajectory into the rest of the year. Obviously, you've described for 2021 is an investment year.

And then your thoughts there and also I, particularly obviously one quarter further so we havent had better visibility on employees battalions office and how that affects your thinking on when those costs.

And then secondly longer time there've been some recent news reports abound challenges for Chinese equipment vendors and serving markets like in India.

So I'm very curious about your thoughts and plans around growth in India, and whether that you.

At present, the next market share opportunity for <unk>.

I'm, sorry Ericsson thanks.

So I think Opex, yes, no I would say we won't see any any major changes such as you know we are continuing day investments in R&D and we have been clear on that.

You can also look at the seasonality that we talked about and planning assumptions for Opex typically comes up in the second quarter.

Then of course, it's a it's especially when it comes to a work from home and.

Virtually no traveling except of course in certain customer delivery cases, and so on so so therefore of course that is a big saving going on from that point of view and let's see how that develops I mean, nobody really knows how that will develop during the year.

But we will ask it looks like now when you win.

And for Nielsen Ericsson continued to work from home during the rest of the year end and we will not be resuming traveling as it looks right now.

But other than that no major impact other than the R&D investments that we do and increase in digital services.

But what you may add is that the Oh.

Of course, we need to learn from these periods, yes, Oh, yeah. So so we can probably saved oh.

On the local do.

There are of course, because we can work remotely definitely all day.

Ambition is of course, even when we.

We assume life, that's a normal day, the new normal or the now normalized for say travel will of course be lower than they were pre.

Pre pandemic, because we have learned so much and how to interact both for customer spending time on it.

That's why I love most likely in other calls like real estate when they're they haven't been lower yet right now.

All that well for space are completely empty, but most likely these will be low whereas for a return after the pandemic. So I think the when you think about cost structures and cost levels.

You know there are many opportunities and lessons learned from this period that we can actually reduce the run rates going for but again, that's not happened yet.

Your in your question I think it's a very interesting question.

Without getting into geopolitics, that's a lot of speculation about that some others do that part but.

India is a very big markets, clearly and day market, where we have strengthened our position over the last few years and is how do we continue to do and one of the reasons why we're growing in the markets area Southeast day shows she will share in yeah in Australia is actually India. So for us there.

It is a major focus markets because that can give us scale and so that is an important area, where we prioritize growing our footprint.

Yeah.

But Don Thank you for your questions and then.

We'll move to the next question from Richard Credit.

Hi, Richard can you hear me, yes can you hear me okay.

Perfectly okay. So borja.

Two basic questions one.

About the structure of the industry, because you've spoken about gaining market share and the message from the operators is the desire to preserve supplier diversity.

And with the geopolitical situation you've referenced many times with the limitation on one of your principal competitors are and the introduction of a new large competitor in in the U S. How do you think about your customers looking at your market share and thinking that it needs to be limited.

They want to preserve more than just a few other options in the marketplace and maybe that's what's driving them to look at new modes of supply like open ran and then I have a follow up question about the enterprise business.

It seems it feels like it's a bit the tail wagging the dog because it's still a very very tiny percentage of your sales can you flesh out a little bit more what your plans might be in the next few years to build out an enterprise sales channel and to build out the range of products that you would need to have a complete offer for <unk>.

Surprises beyond selling through the telco channel. Thanks.

That's a good question.

I think what we need to recognize on the structure of the industry. It's clearly a desire to have multiple choices for our customers and I think that we are going to see that and we plan accordingly.

But I'm also convinced that if we can hope for the best solutions for the market the competitive product portfolio and cost structure. We can continue to gain footprint as we see it right now.

We are never going to be 100 per cent of the markets are even remotely close to that so I do think that we actually even in today's market structure still have an opportunity to continue to gain.

Not across the board not everywhere, but I think we have a chance to gain footprint based on the portfolio we have.

But but as you say there are going to be Oh, the competitors and I think that's healthy I actually believe the competition is maybe tough short term, but actually longer term is good for the industry. So I don't I don't see that to be anything different.

Moving for but then it has been in the past.

And actually it's interesting to look at the consolidation in the market that that was clearly the case.

Without their vendors that have reached way beyond 50% market share in many countries.

For example, in Europe and around the World So I don't see.

Where that limit really eastern market share I don't think where we're there yet but at some point in time it will be there for sure.

Enterprise.

I want to just draw your attention for a very simple fact, if you start building out something it will by nature be small in the beginning it's kind of unavoidable unless people do a very big acquisition. For example, so if you think that's tail wagging the dog, but it's unavoidable starting point.

Unless you do that big acquisition, we're not gonna makes up that's not the plan. Our plan is to instead to build out use cases and applications.

Thing, where the Iot global connectivity.

Starting with our dedicated networks that we're investing quite heavily in the day.

I love being solutions for their markets, including the C. B R. S spectrum in the U S. A.

But we're also seeing average.

Our wireless one offering that we can create a very different network architecture to work from home for example.

Remote working.

Has allowed us for lunch, one, which we called wireless office, which allow you to have full connectivity as the small and medium sized companies around the world your applications.

Without having a local area network.

That this is a major opportunity for us.

Prices.

I would also say our enterprise investments are always sort of being the benefit of kind of two masters in that sense I, it's going to grow the revenue for the service provider as well.

So whether we have to develop a full independent go to market for enterprise is a different story, but what we want to make sure is that it drives revenues for our service providers.

If you look at Crazy point, they actually have a channel structure of China go to market and that's something we're leveraging also for our connected a dedicated network as well as longer term Iot solutions.

So we are trying to do a lot of demand creation.

Through the go to market organization.

So for.

Those two questions, we extra turn now to youngest knows Trump F. T V for young Skinny can you hear us.

Yes, again, thank you very much.

Sorry, I called you have nothing, particularly the kingdom addressing friction between China and the Western World previously, but as we can see there's a number of cases, where there's friction generates real sports at the moment does this worry you about Ericsson my increasingly get caught up in this friction with China.

No. There there is a lot of geopolitics going on and it it relates of course to a <unk>.

Try not U S situation as well so with all of that.

Kind of moving pieces.

Clearly can affect us as well it's no question.

And of course for US with we can do is to work on our own flexibility in the way we drive the business that would probably be the only way we can really truly impact these trends.

But I think it is concerning our what we're seeing right now.

And I want to just say one thing where in an ecosystem, where we actually have a global standard. It allows us on the call net to travel globally with one device, but the reality is for the does even more is it it can allow less fortunate as countries to have a full connectivity. So what we see now is that we.

We have 8 billion subscribers around the world being able to connect on one standard unwound structure and that's something I think it's important that we preserve.

Of course, China, China is preparing for new five G. Auctions is there a risk that ericsson might be.

Badly in these auctions by being a Swedish company due to diplomat the tension between the two countries.

Yeah, I I want to say at the very simple there is always a risk that we were impacted in auctions in different countries.

What we are going to do is we're going to work on our competitiveness, our competitive product portfolio, our competitive cost structure and we are going to try as hard as we can to gain an increasing footprint in the Chinese market.

As an important market for us it's.

Of course, it's a volume question button, but actually it's also a leading deployment market. So it's a it's an important way for us to learn what technologies are going to be needed for the future.

Thanks, Jeff do you feel that you'll have to tread very carefully here.

We are running a company and we're trying to do that to the best of our ability I focus on running the outs as well as we can of course, the geopolitical situation is still very difficult situations and we are working on there. Yes, we can impact I I, often say and I think I've said that.

For you before you answer that.

The reality is the world falls down into buckets, one bucket that you can impact in one bucket that you cant impact so I focus the attention on day part I can impact our products our solutions to customers, our KOL structure et cetera.

Thank you yeah, I'm, saying thanks for those questions. So we are getting closer to the hour. So we have time for one final question.

That is from Johan network fished up the S E T. So hello Yana.

Hello, Thank you for it for being the final one.

I want to ask a question I think if I may two ones are the first one relates to working capital and you mentioned Carl.

Trade payables and impact that life for Valeant.

The supply chain and I'm just wondering if you can give us any guidance what do you predict for it for the full year.

Will there be more of those type of actions have you taken the ones necessary now.

And then on competition you mention in the report that you are sort of investing to take market share I'm. Just wondering how is the price competition currently because it seems like you're growing.

Nicely in Europe, now with market share gains do you need to price yourself in contact.

And that is it the fact that for instance, Samsung has taken over there.

Price pressure being rolled in a sense or how how is price competition in the market currently thank you.

I'll take the first one Ross Thank you Johan on on working capital than.

I would say.

Of course, we can optimize the different paradigm at the Sierra and for US it's more important to secure that we can deliver to customers on time. That's also by the way good for working capital because they get to acceptance milestones on time, and then you can invoice and get paid also.

And what we have decided to do is to invest so that we can meet those milestones in a sometimes challenging supply situation globally and.

And we saw a bit of that in the in the first quarter. We will continue to balance day. It's just as good as we can and I would say, we prioritize of course always the customer delivery. So it make sure that we have the inventory we need the components, we need them, especially the critical component for that we can meet those delivery deadlines that that's a fairly easy.

The trade off that downloads a day exactly how it plays out it depends on I would say the rollouts pay for delivery pace over the year and but we'll do our best to manage our working capital and continue the discipline. We have now I must say throughout the organization.

On competition I would say over the last several years. It has remained a very competitive industry and that is really not changed.

So so you know that that's what we base our plans on what we have seen over the past few years and continue to see.

Yes.

Thanks, John.

Thank you and before we end this webcast maybe some final remarks from your side the volume.

Thanks Peter.

I will just summarize and say that we.

We continued to execute on our focused strategy is to invest in our R&D.

R&D for technology and closely the ship.

And that allows us to be competitive and grow our core business and that's what we're going to continue to do we do believe there will be an inherent growth in the five markets because five G. It goes after both the consumer and mobile broadband as well as enterprises. So we see that growth to continue a bit longer than that.

Normal and debates faster and bigger than normal. So we are very excited about those opportunities we continue to invest for market share gains.

That we have done over the past few years and we continue to see those opportunity on the back of a strong portfolio.

We're also very excited about the enterprise opportunities, it's still small in size.

But we see here with the Oh free sweetest getting together that we're starting to see a healthy growth rate, where we will pursue both organic growth as well as inorganic opportunities. So with that thank you very much for listening in and thank you very much for your interest.

And by that for you will conclude this webcast. Thank.

Thank you I cant do.

Okay.

Okay.

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