Q1 2022 Telefonaktiebolaget LM Ericsson Earnings Call
Hello, everyone and welcome to today's call covering the Q1 result in 'twenty to 'twenty two.
With me here in the studio and she's Tulsa, Oklahoma I have our CFO , calling them a number and on the link from New York I have our CEO Borja.
Nicole.
So as usual will end this presentation with a Q&A session and then I wanted to ask questions. You can join the conference by phone.
More details around that will be fine.
Our website, Arizona Dot com slash investors.
So I will start with this message.
In today's presentation, we will be making forward looking statements.
These statements are based on our current expectations and stopped them planning assumptions.
These are subject to risks and uncertainties.
Results may differ materially due to factors mentioned in today's press release.
And discussed in this conference call.
We encourage you to read about these risks and uncertainties in our earnings report as well as in our annual report.
With that said I would like to hand over to our president and C. O body air cooled. So please for it you can stock.
Thank you Peter and good morning, everyone and a big Thank you to all of you for joining us.
I'm very pleased to present, a solid quarter, we continued to see good results from our strategy execution.
Within our core mobile infrastructure business.
Also as we expand into the enterprise space.
But before I go into the details of the quarter I'd like to point out some new products, we actually have released.
Interleaved are 30 to a range of $44 90 that you can see on the screen.
These products form part of our leading <unk> portfolio, which is really at the core of our success.
So let me begin with how long the quarter's key events.
And of course I have to start with the invasion of Ukraine by Russia, and the continued aggression.
A significant setback for the world.
I'm really heartbroken by the consequences for those directly impacted the war is devastating for our whole society.
After the Imation in February .
So that would be in Russia could not be sustained and we suspended all deliveries to Russia, all the idea at that point in time.
Over the weekend the exception for public Telecom networks has been removed from the EU sanctions. So on Monday, we announced that we have suspended all.
Or suspended our affected business in Russia indefinitely.
This is a complex matter.
Telecommunication networks are part of the critical infrastructure and as you know many western governments I've pointed out pointed out the importance of maintaining internet access and the flow of information other people of Russia.
So we will monitor the situation closely and we will continue to engage with your authorities as we suspend our business in Russia and definitely in an orderly fashion.
We have recorded at appropriate center related to raw shuffled the impairment of assets and are there any extraordinary costs of 900 in India in the first quarter.
From an overall business perspective, we continued to execute on our strategy.
And we see strong business momentum with continued share gains.
In the quarter, we saw.
Organic sales growth of 3%.
As you all well know the situation regarding the global supply chains.
It's challenging.
To ensure that we candidly a very we've made proactive investments in buffer inventory among other things.
We're also investing in diversifying our supplier base.
Due to the geopolitical environment, we mean and that's an environment that we foresee to continue for quite some time.
This diversification drives of course, I'm short term costs, but it also establishes great resiliency in the company as it improves that would it be a niche it didn't have the trial with customers.
And the actions we have taken have allowed us to India.
With customer commitments during the quarter.
Seem to see that loss fades.
More longer term been carrying extra inventory of few quarters.
We have also continued to invest in R&D to strengthen our market position and that will allow us to gain share and we've seen that in this quarter again.
But we were also endorsed and I think that's important by Gartner named US a need there are five network infrastructure in their magic quadrant.
We are focusing our increase in R&D investments to maintain a strong competitive let's say so.
We are investing in driving next generation ASIC as well as our cloud native core portfolio and service orchestrations DC.
These investments in R&D, we generate a strong return longer term.
Of course, the impacts the profit that being that the short term as they are not yet revenue generating.
Gross margin came in at 42, 3% underlying business performance is solid.
At the gross margin includes the effect of one large salt so I call them check that normally is recorded in Q1, but this year was pushed into Q2.
Based on these contracts is about the point 9 billion Swedish krona.
It's also a contract pushed into Q2 impacted also networks gross margin.
<unk> 44, 7%.
And the impact of these software I contract.
<unk> 9 billion on gross margin in networks as well.
In digital services, we saw encouraging sales development in the 1008 <unk> core portfolio with double digit growth. However, we're not satisfied with the overall results in the quarter, we need to improve faster.
We increased focus on accelerating sales growth and addressing efficiency to improve profitability.
Our EBITDA margin for the group was 11%, excluding a fair market revaluation on the programs related to Russia.
In the quarter. We also received communication from the Doj about the breach note this relate to our DPA.
Engaging with the with the Doj about this matter.
What I can say now is that it's our assessment that the rest of new show will likely result in monetary or other measures. However, the magnitude of these kind of.
At this time be reliably estimate.
As these processes ongoing we remain limited in what we can say about the historical events Calvert, India, Iraq investigation and related matters.
Let me now turn to the customer and market side of our business, where we continue to see a very good momentum.
As we are now hopefully starting to transition out of the pandemic I'm also happy to start interacting more face to face with our customers.
And you know that's what gave us the energy in this job, it's actually to meet both our people, but also the customers that that's a great way to see what happens in the business and drive our own improvements.
And now we're getting back to that more business as usual.
And we continue to see good momentum in our interaction with customers.
Overall sales growth in southeast Asia Oceania and.
<unk> decreased by 17% year over year that was due to timing of orders and project milestones.
So very strong continued momentum in North America, where sales were up 9% year over year, driven by continued very high demand for <unk> solutions across all segments.
And the U S customers continue to be at the forefront of <unk> deployment.
For example, we see customers, indicating good traction it peaks wireless access as a new use case.
Sales in North East Asia.
Deep signed by 20% year over year, primarily as a result of project timing in Japan.
We continue to see good opportunities in Japan, which is a highly developed market with dense networks and high demand on capacity.
I wasn't here I'd like to point out that the increased sales in mainland China and this is driven by timing of orders there.
The Middle East and Africa sales decreased by 9%.
Interest you to know what are your investments and pipe in the middle East and was partly compensated partly offset by growth in Africa.
Overall, we're seeing encouraging momentum in the African market.
Finally in Europe , and Latin America sales increased by 15%.
You are up seeing an 18% increase.
This strong development was driven by networks as a result of continued market share gains.
And it's great to see that we're now back to strong growth in Europe .
Let me talk a bit about our strategy execution.
Our core business remains.
To extend our leadership in mobile networks.
An example here is our massive mimo portfolio, that's proven to be highly competitive.
You too.
Yeah, I think we lost the ability to hear score a few minutes to see if we can reconnect here.
As I've said in the beginning here about is on a link directly from New York.
He ended up to them.
They had some challenging center sits here, but let's see if we can reconnect.
Reconnect with $1 billion in a few seconds here.
Keep on going.
We look forward to hearing the continuation here all of them, but yes talk about the start to the execution.
Both on the mobile networks side of course in the core business at February It was just talking about now, but then also.
So encouraging how the enterprise piece I can start with you might have to worry about in in my ear at least not was back right.
We saw them.
I would put it at your back.
Yes.
So I don't know whether I last June but.
Okay, maybe I'll.
Yeah. So it's all good.
But we entered this strategy execution.
And you know that our.
Jim.
The focused strategy, we have remains to extend our leadership in mobile networks.
And here you know the example of course that we invest in massive mimo portfolio and that's proven to be highly competitive and one of the reasons for a market share game.
But I also want to highlight.
We foresee a longer investment cycle in our core business compared with previous mobile generation and that's because <unk> broad applications will drive.
You need to increase capacity.
The new applications migrate to wireless access.
And I think also here, we wanted to highlight there, but we see it so of course that the continued investment that the operators are doing in Capex is of course important but it's also to say that it's only a portion of that the overall capex that goes into active components.
So what we see is that.
For the future as the network needs.
Densify and capacity needs to increase.
Portion of active components that we can supply them.
Our addressable market actually we increased OBO operates it was capex and that's why we were very.
Confidence I'm very comfortable about the strong outlook.
The market segments, we are working in real time.
And we continue to invest for this what I would call it bright in growing markets and.
And we have continued to increase our R&D, leading to the ran market share gains that we see outside of China, but also to the increase in our profitability.
We've launched new ran products and solutions, including next generation AC.
Strong progress towards enabling our customers and our path towards sustained it'd be in lithium and have the lowest carbon footprint pulse you Budd.
So for example, our new routes and new shows.
Consume 25% less power compared to current product.
We're also expanding our leadership in five core 16 out of the 20 largest operators globally using ARINC. Some five G Corp.
Signed over 60 contracts.
12 live networks, which is Florida ahead of our nearest competitor.
Sales are not growing as five you are getting to watch around the world.
It's from a very low base.
They can't didn't networks and Crazy point are the foundation of our enterprise strategy.
Don has taken significant steps towards growth here.
Phases point is now showing 52% year subscription billings growth this strong momentum into five G portfolio debt.
Dedicated didn't networks is gaining momentum and we have launched Eric some privates five G, which is fast and easy to deploy and easy to operate and office and lifestyle can assured solution.
The global networks that for them.
To create a new market for network Kpis that will enable developers to use the advanced network capabilities and a bit by five G.
Basically putting the five getting that work at the fingertips of the developers.
Either given the new opportunities and assets from the intended acquisition of ball niche, we're getting strong traction and interest with our customers, we're accelerating the execution to deliver network api's.
The recent milestone.
Our announcement of the end user so both boost.
An application that allows for better networks call. It there when it's needed but the pass on about them. So for example, when doing unimportant video call. So so it's not dropping like it happened to me just a few seconds ago or a few minutes ago.
That's about it for gaming.
Interest level is very high.
And the announcement that.
We did together with smartphone in Hong Kong generated more than 150 million unique visitors on our webpage.
In short we believe the market for network Api's, we'd be very large and we can be that and create that market.
So we continue to work to close civil niche acquisition during the first half of 'twenty to 'twenty two.
With that let me leave the word over to you a card.
To go through the financial details of our report.
Thanks, Maria and good morning, good afternoon to everyone.
And I just wanted to reiterate just talk for that we deliver a solid quarter today and there are some one offs, but the underlying business, it's really encouraging with a great business momentum.
Let's drill into some of the numbers here I was talking with the top line 55.1 billion Swedish kroner sales thesis and organic growth was 3%.
Reported sales grew by 11%, but we do have a strengthening dollar here underlying so organic 3% growth.
I said, then and you saw in our boutiques World My earlier, where.
Particular growth comes from where the North America growing by 9% in constant currency and Europe Latin America by by 15%. We have won market share during the quarter as well, especially in Europe in line with with the strategy that we have.
IPR revenues came out at $1 4 billion.
An increase of <unk> 6 billion year over year, driven by renewal of the license agreements and and this was in line with the guidance that we had provided already in the Q4 report for Q1.
And we keep the same guidance also for the second quarter between one and one in a hospital in all IPR revenues.
And as you know of course this guidance is based on on them.
We're dependent on the timing of renewals and the terms and conditions on new agreements are signed but we we do remain very confident in our.
Strong five year position in the leading patent portfolio that we have.
Gross margin in extruding prospectus restructuring charges, there was a decline of 60 basis points year over year.
242, 3%.
Android is cut from the items here, but of course, we are actively investing in the supply chain resilience and we do have a the.
The lower software and that makes that we'd come back. So that's a little bit more light on gross margin R&D and where do you increase investment authority decided it came out the $10 7 billion. This quarter, that's a 1.1 billion increase.
Year over year half of that is related to FX.
But that the investment we do here is again and cloud ran and that next generation Asics for industry, leading radio performance better power saving possibilities and footprint reduction.
Yeah.
In the quarter, we had two one off items I should mentioned also swelled again, one is that the provision we made in connection with the Russia business. That's the point 9 billion and also we had a financial investment revaluation under our Ericsson ventures umbrella and that's a point.
Billion.
Revaluation and together those represent $1 1 billion down both reported in other income and expenses.
That brings us to EBIT, so EBIT, excluding restructuring charges came out that $4 8 billion.
And this is eight 7% in EBIT margin.
But however, remember these are one off items that we had.
Of course, including what effects, we had in gross margin.
Which I will come back to it but also the one off items are impacting so excluding the one offs.
Yeah, but it would have been at $5 9 billion in the first quarter, which represents an improvement by <unk> 6 billion year over year in absolute terms.
Yeah. When it comes to the tax rate, we had an effective tax rate in the quarter of 29% and you also see here on this slide the net income it came out at $2 9 billion.
Following the previous into Russia in Altice.
And then free cash flow before M&A, a minus $1 7 billion in the quarter and this is following the active build up all the buffer inventory for sucked in critical or vital components that we have decided to do.
But if you look at the rolling.
Fourth quarter free cash flow before M&A.
We are up to 28.8 billion Swedish krona. This represents 12.1% of net sales switch.
It can be compared with our long term targets as you know, which is 9% to 12%. So we're ahead of that long term target still in free cash flow before M&A.
And finally on this slide here are the rolling four quarter EBITDA margin, we look at that.
Excluding restructuring again as 14%.
And this can be compared with our long term target of at least a 15% to 18%.
Look at the segments that'd be it's more starting with networks there.
And here, we are encouraged by the 4% organic growth in the quarter and we were able to deliver on customer commitments in terms of deliveries. Thanks to all the hard work on the supply chain recipients that we have done.
Yeah.
Beauty amounts and I'll, just repeat that but you mentioned the 1 billion in software here and this is a.
Great.
Contracts that usually comes into the first quarter now it's pushed into the second quarter of course, it has a larger impact on the gross margin solved.
All of the networks.
And I also wanted to point to the again, the rolling four quarter EBIT He had.
I report that is in that was 21, 3% after Q1 him.
Indeed at the services gross margin, excluding restructuring again decreased to 70 basis points to 42, 9%.
This is a result of initial deployment cost in the high <unk> contracts, which we are of course extremely happy to have one and that we are now implementing for customers.
It came out at minus four minus.
One is a $1 4 billion.
Excluding restructuring charges.
And again as Maria mentioned, we're not satisfied with the overall performance here of course financially so.
The target of limited loss for 2022 is challenging given the increases in R&D that we see in the service orchestration, but also the cloud native a five day portfolio.
That's why we are increasing our.
Focusing on accelerating sales both sales growth, but also addressing efficiencies through automation and other measures.
In managed services EBIT margin, excluding restructuring ended up at 11, 8%.
And this is partly and importantly, a result of increased network optimization sales and this happens in the wake of fiber build outs were optimization services are our demanded and requested by the customers.
This helps our gross margin in our managed services that was also an element of timing of costs that are impacting positively the margins in.
Our managed services, which actually recorded the highest EBIT margin since the inception of the segment.
And lastly on the bottom right side of the slide you see emerging business and other.
And as I said previously we had this point 3 billion hit from the Ericsson ventures reevaluation.
Instead, if we focus on the underlying business in emerging business and other.
We saw good progress, especially in Crazy point and also dedicated networks.
Before and.
Last two quarters, if I could we saw record growth in crave the point in the business momentum here with the new portfolio also tied into five D is accelerating.
We launched a new version of the Ericson private five D. Within dedicated networks. This is a solution in a box.
Truly software upgrade about obviously easy to install and manage.
Finally, our five year ready of course, and this has been deployed already with many enterprise customers and we see good traction also in that offering.
So let's have a look at the gross margin again I commented that briefly before but when you find it useful to look at these rolling four quarter picture as well on gross margin.
And you see the rolling four quarter gross margin is 43, 3%.
And I think we've talked about the reasons behind here, so I will not repeat them.
Talked about the software the 1 billion software, we've talked about the supply chain investments that we do and also the initial deployment costs for the five quarter contracts in digital services.
So now I suggest we move to our next one which is really looking at how have earnings then.
Come out in a free cash flow.
And gassy wish you luck in managing working capital remains really a focus area for us it's a strong focus.
We talked about the investments in the supply chain and that twice previously and this is also visible here in the working capital and inventory buildup.
We expect rather elevated inventory levels to remain the next two quarters.
But remember this is a value creating investment that we do in order to meet our customer commitments.
And obviously the cost for doing this is a far better than missing deadlines or missing customer commitments. So this is a good investment that we're making.
As customary in Q1 I can also mention we we had a cash outflow sure accrued employee incentive related expenses.
And these effects were partially offset by a very good cash collection in the quarter.
And also an increasing in contract liabilities related to customer contracts and also IPR payments.
So our free cash flow before M&A, that's that's a key metric for us with Ericsson came out at $1 7 billion negative us to see.
Mainly due to the buffer inventory and that we have decided to build.
And I already mentioned, the rolling $28 8 billion and free cash flow, which is 12.1% of net sales.
So after this quarter, where we maintain a solid cash position ahead of the planned bonus equity say sung <unk>.
<unk> cash came out at 65 point to 2 billion.
And the gross cash is now 104.2 billion Swedish kroner following the ER.
Europe on slide 750 million Euro that replaced in the market in February .
So with that thank you so much and I hand back to you, but yeah.
Thank you Cor.
So to sum up.
We report.
Solid quarter with good underlying performance.
But I would also say we know that we can do better.
So why would navigating a challenging environment, we will continue to be well positioned.
Take the next step in our strategic journey.
As we move forward, we will focus on continuing to focus on executing on our strategy to extend leadership in mobile networks, but also expand into the enterprise focused way.
In mobile infrastructure will remain our core and we know it's there and the effort to strengthen our position in it.
In here.
You saw a solid underlying performance in the quarter and we're excited about our outlook.
Technology leadership, we've been driving our competitiveness.
And we will continue to invest in the R&D and be on the forefront.
And in this picture here you see some of our new who call ducks ready to drill 44, 19, and massive mimo are 64 28.
We are encouraged by the growth do we see in North America and Europe .
<unk> momentum, but also share gains and of course, our ambition is to continue to grow and do that look these business both based on market growth as well as market share gains.
On the IPR side, our strong five G position, leading patent portfolio makes us well positioned to conclude the outstanding renew us.
On the enterprise side, we're seeing equally good development output.
Our portfolio of pre package to enterprise solutions like crazy good points and dedicated networks.
C C.
See very good traction over one.
And we continue to work towards closing the vote a niche acquisition in the first half of 2022.
To start two they're looking to global networks path for them.
We can call them for them that these investments were doing both in our core business and in enterprise spend space as well as of course, our cultural journey, we're going through he would make Eric sone as stronger more resilient company.
The same time put us on a higher growth trajectory.
We have a solid business today.
We're on track on reaching our long term target of.
A 15% to 18% no later than in two to three years.
Finally, I want to thank all of my colleagues and team Eric So on who made this possible.
It did seem plant you rock.
And with that I would like to conclude this part of the presentation back to pizza for your questions.
Thank you Maria I'm longing for the days when we will transform base on a path for them maybe.
Maybe once and if future, let's now move to the Q&A.
So on Nash, we are ready for the Q&A session.
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Yeah.
So let's start here I can't really see visible maybe now she could you help me with the first questioner who stopped from.
Our first question comes from the line of Alexander Peter from Society Generale. Please go ahead.
Yes, good morning, Alex I think.
Hi, Good morning, good ones you all and thank you for this question I just have a couple of points of clarification first of all.
Given that you have 1 billion.
Oh.
Software sales in networks slipping from Q1 into Q2.
Should we therefore assume that your second quarter sequential growth may come in ahead of the usual seasonality I see like probably about three to four percentage point boost as a result of the slippage is this the right way of looking at it secondly on the inventory so I understand your investment.
Sure.
Can you tell us have you now happy with your inventory levels or will this investment into resilience continue in the remainder of the year and then just finally, a point of detail on your IPR revenue run rates, excluding the impact of delays into renewables. So your normal run rate.
Should we think now is a positive FX impact there given the current exchange rates will do to the old levels that you have good previously still prevail. Thanks a lot.
Hum.
And before you can start with the software comments on pump.
Yeah.
You can take get cards go your own resident gearing up I see [laughter].
Okay.
Although I think thanks, Alex on the question to start with and of course, that's you know in every quarter. There are many puts and takes are and we typically don't guide that specific outcome of course on top line, but when you usually you just refer to what the three year average seasonality is in this case. It is true that this specific.
$1 billion in software E skeptic move than where we are certain of that into the second quarter.
But as you know there are many.
Puts and takes in every quarter and we have to of course, we are an everyday to to get to the final result, so.
I would I would just look at the total seasonality there and then you make your own.
Calculate sort of assumptions based on that.
And on the inventory levels are we happy I mean, we see this as something that way, but it is a value creating investment given the situation we have globally on the supply chain.
The words, we we are building up this buffer stock so that we are able to meet customer commitments.
The global situation on components change of course. This will this will also be we would be able to decrease those levels again and get up to a faster turnover of inventory but.
But for the next couple of quarters few quarters are we we believe that this elevated level of inventory, we'll that will remain.
And then on IPR.
They are I don't want to know if you want to comment on that but I mean, this really has to do with the RIN.
Renew.
That we have in the pipeline at the moment and I don't think we can comment so much on that you know which ones. They are.
And only to say that we are progressing those in the in the speed that is possibly between the two parties and we.
We will of course come back can inform you in whenever we have something new to sell them.
Thank you very much Jeff I think the only thing to add there is.
And all the work for US, it's really important to protect the long term value in the contract so where we're going to do what we can to them.
It depends on the value of the investments we make.
In a market, leading IPR portfolio with more than 60000 patent so where are these and you know it's it's also involves court processes. So.
Let's that's keep you updated as we progress but the.
You know were real comfortable with the position we're in.
Thanks, Anna Center move to three other acts of O&M from County here, let's see at arc.
Peter Thank you operator, and thanks for taking my questions. So first I'd like to ask about the higher R&D costs for the quarter. What can you say about this cost level generally for the remainder of 2022.
For Q1 alone or should we expect a new base effect for the rest of the year.
And then secondly, thinking generally about cost inflation, what is your ability here to pass higher cost to customers and I guess Ericsson Nokia likes to charge more for innovation and product launches, but as you spend some time on talking about very nice launches in networks in the intro. So question is general ability to pass close.
Excluding your products and also to what degree portfolio innovations receive uptake in orders within a year that would help you manage the logistics cost or input costs. Thank you.
Doug.
I can start on both of them and then on the R&D level.
You can safely assume we're going to continue at the at the.
The higher level and the reason for that is of course that we are going to be technology leaders in mobile infrastructure. So you see our child draw on the investments you can see the ASIC investments, you'll see the five core portfolio service orchestration, we're going to keep pushing ahead.
And we believe the long term return on those investments are very high.
And just to draw the analogy to 2017 were up.
Hum.
Gordon I call. It 10 billion kroner on the run rate's R&D and that has resulted in significantly improving profitability in the company. So the return on these type of investments that we're doing may take a few years to materialize, but they are significant and we see the same thing with.
The investments we make here now in child drilling service orchestration et cetera.
And where do you think the system.
It's the right way to execute for a technology company in order to get paid through gross margin.
So the commitment to needs on pick the one that you were not wavering from that but we also see that that's going to pay off in gross margin longer term.
A recording of the call stimulation and Youre right. This is a challenge you know the costs are increasing.
Increasing and we see that those salaries, we of course see it up on components as well pads.
You had fairly high increases or so in the first quarter.
But you also see the this whole new the underlying performance.
And the important part here is that when you look at the cadence of new product that we're introducing.
We're actually that's what we use in order to protect or increase our gross margin longer term.
So I believe in technology, and it's really about staying at the forefront using product substitution in order to.
Try in the future gross margins and that's what we intend to do that's why you see US also for example, investing in the future because that's going to help us drive.
Call it the better performance, but also the ambassador of being Nikita.
The price.
So that's why you know.
They go kind of your two questions. So that's a matter of fact go hand in hand.
Thanks, Pierre and then it seems to me Oh, sorry call Oh, I think you said it.
Yeah.
And we'll move to Peter Kurt Nielsen.
Although particularly.
Hello Pizza.
And thank you for for the opportunity I'd like to turn to digital services piece over the past couple of quarters. Your commentary on on digital services and your confidence in outlook has been a significantly more positive now we seem to be taking a step back. In addition to the increased R&D spend can you elaborate.
On what are the challenges here and it sounds like Youre seeing some unanticipated challenges here also an unanticipated need for higher for highest been can you elaborate a bit.
For us to better understand why why why is the outlook has now become a bit more cautious than it has been in the past, particularly keeping Yo Yo Yo.
Positive commentary over the last couple of quarters there'll be appreciate it. Thank you.
Oh yeah.
Yeah, no. It's a it's a great question. Thank you for that.
We see them a bit.
Well itself the top line, that's why that doesn't seem to reality.
We see very strong growth in our underlying <unk> portfolio.
Good development in our DSS Sundar shows. So you know there are positives and there are some sleep, but just seeing here, but just a bit more cautious on the outlook on the outlook and we feel that we really need to put.
Put even more.
M. A C store sales execution and drive top line better than we were able to do during the first quarter. We believe the product portfolio. We have it's very competitive we have 16 out of the 20 largest operators so weird.
We believe we have a strong position or we didn't need to execute better.
And that's where you'll see our hesitation here.
And that's what impacted it's not really a change in market out there.
Do you see a very strong market outlook for our soon to Samsung and our competitiveness.
But we have not been successful in our execution basically.
Thank you Maria and thank you God willing to sit still.
I don't know, which from Kepler Cheuvreux I sebastien.
Hello, everyone and thanks for taking the question one question on the business trends for the coming quarters, how do you see this business.
Business developing in your menu what people market for the coming quarters, where do you see some specific goals supposedly tea and where do you see some potential challenge to.
Welcome to maybe it's a contract of underlying trend in the second one is on <unk>.
And you cant take slippage.
Kind of visibility do you have to eat in the Q2, we've had some things that he's so they know us.
So most of it didn't you're willing to say in Eagle East wouldn't Union contract thing too.
So I'll take the second one I listen I think we are at we are sucked on [noise] that this will come in and it's moved from first to second quarter that specific one.
And that's a market comment as a do you want to start up again.
You can start.
Oh, maybe I'll just kick it off then a when we look at the predictions now that have been updated from the Laurel again, reflecting this very good momentum inside the deployments you say that now the.
The growth for 2022 as predicted it at 5% so its upgraded again.
And 8% in North America, and I think Peter you talked about this before as well that they need for Densification in North America and the fact that also the three band the second part of the C band spectrum is coming out Ah Ah now in 'twenty to 'twenty, three which means starting gearing up already now so I think.
North American momentum definitely to continue.
And then just to manage some perhaps.
One more example of the markets, India, which are whereas <unk> spectrum will become available. Later this year is of course, a massive market in general and one that where you have a great hopes for as well when it comes to increasing the footprint.
Anything to add.
You can add what we see is that the five G is increasingly getting rolled out across the world and foreign said did you know you'll see the U S of course accelerating.
You see and yes, well, you'll see Europe starting.
So this is happening now and we believe we're very well positioned in that market than we've seen the confidence about the growth outlook.
The clear market leader now outside of China.
So so for US we're going to continue to invest in in driving that.
Thank you you seem to work done to highlight also is that five G. As an access technology.
I believe we'll be both are higher than they have been done.
<unk> before.
Also longer investment cycle and the reason for that is of course, the that'd be a start to onboard you use case since onto wireless access technology. So think here about peaks wireless access point to drive traffic you see a very rapid uptake.
In markets, where it peaks wireless access these new ones. So examples in North America for.
You mentioned one.
But we also see new applications in the sense of enterprise use cases.
Private networks integrates into the macro network will drive.
More traffic on to the wireless access networks, we see augmented reality applications coming online now that would drive traffic that didn't exist before so we see it in a way.
<unk> is becoming a much more ubiquitous technology than <unk> and therefore, we're where we're also seeing a day.
Different investment pattern than we've seen before so that's why we're we're very excited about the outlook for wireless technologies.
It will actually play a big enrolling into the future than it even even if it was big in the past and allow the consumer to digitalize, we see it does even more important going forward.
Experian and thank Sebastien will move to Francois.
Here at UBS.
Good morning Francois.
Good morning, everyone can you hear me okay.
Perfect.
Okay. Good it's actually perfect because bogey is a photo of to your point. So when you look at beyond 2022, and may be 'twenty or 'twenty three.
And the run market grows.
You know when we listened to the U S operators some of them are talking about maybe peak investment in five G. In 2022 at the same time, we see the Chinese operators that for 2022.
King about lower investment in five G because of.
Some say a lack of applications.
So I mean, how can we look at the <unk>.
U S market specifically in 'twenty three given these comments I mean, how it can be different than than maybe the Chinese market. Maybe you can explain why we see the same trend and then than the Chinese market in the U S. If there is any specific reason behind that and the second thing is on.
The enterprise how.
How much do you.
S teammates enterprise channel ease as a percentage of revenues today.
Got it.
Corridor around your current exposure to what the enterprise business today as a whole would be very helpful. Thank.
Thank you very much.
Pittsburgh.
Yeah, if we start with the first question.
It's a great question.
Of course it is.
As you finish your question indicated there'd be some uncertainty.
But if you look at well what is happening here is a couple of things going on first of all China is actually.
Should it be built out a very.
Good networks will read now so that pets are already in a way.
So in order for that to drive additional capex, it really needs to get more traffic onto.
So some of the China.
A few years ahead of the rest of the world.
So I think yeah.
Like in it to see applications now starting to be developed on the Chinese networks that are going to drive traffic.
They will be because of the capacity they already have.
In the <unk> networks.
We're ahead of the west.
Look at the U S.
Specifically, what we see there is actually a battery.
We see this C band build out continuing into 2023 as cord said before.
That will of course drive.
Capex, but the other thing we also see and that's important is we see also a shift in capex need into more active components into densification Coke the networks I E in wireless capex, but a lot of the Capex you know only three quarters of the.
Capex goes into.
Fiber.
Concrete steel towers et cetera and that.
The bulk of Capex. All went part is a small portion and that portion we believe given the development of the underlying traffic in the networks actually will continue to grow and that's what we also see when we look at North America.
The networks becomes increasingly did when you traffic. They will also continue to expand capacity in the networks and that's why we are you know where we stand in <unk> 'twenty to 'twenty three is a very good year for wireless capex.
Good thanks.
I'm, sorry, what was moved to them yesterday.
Just on the pricing.
Sorry, sorry, sorry.
Uh huh.
Yeah first of all thanks.
Thanks for the question no I can just say I mean, it's a relatively small scale of course of ericsson's total.
Things today, but it is a fast growing sector and that's why we're obviously attracted into it.
And and focus so much on the enterprise side as part of the stop the deal as well and you know we have talks about the overall addressable market for our customers.
<unk> is growing very rapidly into the future and we believe probably this is as large as the consumer side or the <unk> side as well going forward, but of course, it will take a little bit of time and as already said, we are certainly working and engaging with many many enterprise sectors et cetera to stimulate that.
Demand and show what is possible with with five D and we see great interest also from the enterprise side, So I would say today, rather small base, but.
Hi, ambitions in a high growth rate in that market going forward, which is underpinning our statements that we believe that the fifth generation wave is going to be stronger for longer thesis what bids coming in addition to the traditional run basically stuff.
Yeah.
Thanks, Scott and then we'll move to spend more time, there I have to talk it's interesting. So please.
Thank you good morning, and thank you for taking my question and congratulations on a strong underlying performance I.
I have two questions. If I may the first one regards what you said earlier on in the call.
The the <unk>.
The resolution of the Doj matters likely would result.
Result in monetary or other measures I'm interested in what you can say about what other measures potentially could be the second question is regarding digital services, you say that you're happy with.
What sort of what you have but it's a question of deliverance. So my question there is.
Do you see any need for possible changes in structure or leadership within digital services. Thank you.
Yes.
Yes.
Yeah.
Maybe I'll take the first part and I can answer the second one you know the reality is we are we have been on a journey.
In digital services.
This is an area, where we've had the doses for long periods of time.
So of course, we need to look at.
What can we do to improve them.
It's the execution, what can we need to do to improve our daily a real competitive products to the market.
What I'm also trying to say is we have a very strong portfolio today. The team has done an outstanding job at getting that portfolio onto the market.
When you look at our we named.
16 out of the 20 largest operate there's still probably a good core for example, that's a pretty good achievement, that's actually something that would be very proud of dog as a company and so.
Well, what we see in the numbers is we need to do far better than that so I've done that that's why we also see its a challenging target.
So improving or increasing our airports so to improve sales execution even further.
I'll have more to do also on the portfolio, we can invest in automation and service orchestration.
The new product portfolio and here, we have more to do.
But we will continue to do that.
And they execute.
To the best of our ability.
So the commitment on our side too.
To reach a satisfactory margin Altair in in the next few years is the same as before.
We see a bit of a.
Need to improve that execution following Q1.
Thank you okay.
Yes on your question a high yeah, I mean, as we say we are engaged now with the Doj to to resolve and discuss this matter. Some solar and now we are of course very limited in what we can say so I can't really speculate about what measures.
The Doj, we will decide on but we want to announce it say in the report that it is it is a likely.
Likely that.
The closure of the resolution of this will include both monetary or possibly out of their masters and exactly what those are but it's I cannot really speculate about that so we will we will follow this of course on <unk>.
And inform us as much as we can when we can handle this.
Under this matter.
Okay and I understand.
Sure.
Okay. Thanks, that's it doesn't move them to Don are you there.
This bank good morning, Daniel.
Good morning, and thank you for squeezing me in.
And.
So.
The question is.
I could start with the that needed to service again.
Because we saw double digit growth in DSS and five vehicle.
While revenue was still down 2%. So there is is it mainly would you call. It legacy sales of just dropping so much or is it.
So and also again on the execution.
Mainly the cost control or the sales execution that this you are not really.
We're really happy with.
I don't know, let's say if I may all scale on the managed services doing well with 23% gross margin in the quarter.
Should we see this as a new higher level or is it a temporary positive effects in the quarter.
For managed services. Thank you.
If you'll take corn.
Doctor maybe it starts from the from the backbone on managed services.
It is a good level and as I said, it's a it's the highest we have seen in managed services that there is a certain dependency on the timing of cost so and.
We have seasonally low cost but also.
This quarter.
Caught a rather low.
Cost factors that came into the books and I think over time, we would see that normalize again.
What is good though and I also point that I thought before is the network optimization phase and that's that's a good margin driver for us and it certainly helps our margin come up.
But I would I would encourage you Danielle and everyone to look at more than a four quarter rolling.
Margin profile of managed services I would say in all businesses, but especially in light of this managed services because of this cost fluctuations between the quarters.
D J S.
Yeah.
I can start if you could go yep. Okay. So so your question was and it's very correct, where we see double digit growth in the core. This is of course, a strong point here and we've told we've.
We've talked about the the number of contracts where are we in and so on but you just said before that the out of the 20 largest operate or 16 of them are actually on our five core Pos which is a great result, I think can improve the capabilities of our offering.
So that's all good.
But then of course, we are in you could say we are in a shift between the older parts of the portfolio and the new.
And what is the fact with five decor contract is that we we have some cost associated with those now initially but revenues will come later, we've talked about that before or so it's still true in this quarter, it's growing but still at a rather low level and of course, the majority of revenue will come as more and more networks actually go.
Live and then when subscribers are migrated onto those.
So at the same time then of course, the legacy sales are not keeping up and this is why we want to focus even more on accelerating the top line.
I think you kind of adjust that theyre in.
The question is well taken.
We shrank in the first quarter and you know that for us to really.
They leave their own potential double digits. The services, we need to get back to sales growth and that's really the.
The reason why we need to put more focus on sales execution.
We're not going to win on the coal side here, we need to be efficient we of course need to keep costs under control.
In reality, we will be successful is by driving revenues by getting our products into the market. We see good traction in several parts of the portfolio, but I also see that we can do better in Boston.
Thanks, Brett Thanks, Don and then we have another one for me if I heard that the last question actually coming from Alex Duval of Goldman Sachs. So please Alex.
Yes. Thank you very much indeed for squeezing me in and I'll keep it quick you talked about you'll run product power consumption being 25% better than current products just wondered how that comparison you have each products from the competition and you've obviously referenced R&D investments. So I just wondered if there are further improvements we should be thinking about that can help.
Sustainable competitive position that many things.
This is really the key of our long term success.
Yes, today, it's 25% lower but tomorrow, it's going to be even lower than that.
That's what we invest for and that's why in all the key here is for US to stay ahead of the technology curve.
Always.
Sure that we lead on power consumption lead on spectrum efficiency performance in the networks that that's really why we can't sustain a bit there.
Gross margin as well as operating profit and and really our booked us drill them to turn around the company is actually there could be it's been to invest in the technologies.
Doing that we can get the best signals margin or better operating profit. So that has not changed and we continue to see that.
Good customer interaction when we launch new product because it really address this need for the customers and that's what we will continue to be dedicated to.
Thanks, Brian and thanks, Alex it's without question.
I guess before we end the call you you want to make a final remark Cambodia.
Thanks, Peter and thanks to everyone for joining us for this call.
We as we said.
But oh no. There is so little before mid so solid quarter to the record we feel their underlying performance and the business is strong.
There are some one time effects this quarter.
Fortunate that they they happened in the business.
When you look out at the read the performance is good on.
Our execution on the increasing our market share and footprint and we can grow top line, but.
But we also have a good operating performance when you adjust for the one time effects. So we are confident about our strategy.
Teen user and extend the leadership in the core mobile infrastructure business and gradually build depressed since in the enterprise space and when those investments were going to go to a higher margin profile as well as better growth profile.
Two to three years. So we're very excited about that journey and look for it but it takes the acute thing on that so thank you very much for joining the call.
Okay.
Okay.