Q4 2024 Telefonaktiebolaget LM Ericsson Earnings Call
Hello, everyone and welcome to the presentation of Ericsson is fourth quarter 2020 full results.
Speaker Change: With me here in the CGI today Boy I call them, our president and CEO and lost tons, Joe My Chief Financial Officer.
Speaker Change: As usual, we'll have a short presentation, followed by Q&A and in order to ask a question you'll need to join the conference by Fay.
Speaker Change: Details can be found in today's earnings release and on the Investor Relations website.
Speaker Change: Please be advised that today's call is being recorded and that today's presentation may include forward looking statements.
Speaker Change: These statements are based on our current expectations and certain planning assumptions, which are subject to risks and uncertainties. The actual results may differ materially due to factors mentioned in today's press release and discussed in this conference call.
Speaker Change: We encourage you to read about these risks and uncertainties in our earnings report as well as in our annual report.
Speaker Change: I'll now hand over the call too buoyant allows for the introductory comments.
Speaker Change: Well, thank you Danielle and welcome everyone and first of all of course, thank you for joining us today.
Speaker Change: So we delivered a solid Q4 results and we've made good progress against our strategic priorities in the 'twenty 'twenty four overall Moma.
Speaker Change: Momentum around programmable networks are new ways to monetize them continue to build up.
Speaker Change: Okay.
Speaker Change: Start by focusing my call me on two key areas first the progress against our strategic initiatives, our second how we position the business to succeed across varying market conditions.
Speaker Change: Okay.
Speaker Change: Beginning with our strategy that aims to build the networks of the future through programmable networks and open API architecture.
Speaker Change: But our service provider customers to deliver differentiated performance and new applications and new.
Speaker Change: Cases monetize.
Speaker Change: The contract and you remember that we signed with AT&T last year really paved the way for our newest disagreements with mass Orange, which we signed during the quarter.
Speaker Change: I would say our agreement with mass Orange was really.
Speaker Change: The first stope scrambled network in Europe is a key milestone for us and the European telecoms industry.
Speaker Change: With disagreement Arizona mass Orange will collaborate to lay the foundation for open programmable infrastructure that will drive technological advances and grow its moving forward.
Speaker Change: It will allow differentiate your connectivity.
And why it's differentiated connectivity so important well if you think about the whole radio stack and we're serving a massive number of different applications, we're serving anything for mobile broadband and fixed wireless access mission critical communication, but also a or I guess or a I driven.
Speaker Change: New applications, we have a R V hourglasses all of them will require differentiate the connectivity and here programmable connectivity play some very important drought. That's why that's a key focus for us.
Speaker Change: But besides that we also launched a number of enhancements to our portfolio, including more sustainable massive mimo radio with more than 25% energy savings and you ran software capabilities that significantly boost before miss and Programmability.
Speaker Change: On the enterprise side.
Speaker Change: The joint venture we announced is set on in September with 12, leading service providers to aggregate the cell network api's represent a key milestone in redefining the telecom industry by creating the supply of network API used across several continents, and we continues to see.
Speaker Change: The momentum building for network Api's and during the fourth quarter. We also announced the name for the new venture are doing now and you can expect many more announcements to come in the in the future here.
Speaker Change: In enterprise wireless solutions, our strategic ambition is to further build out the go to market engine.
Speaker Change: Last year, we combined the activities under the Ericsson Brown and announced a new enterprise five G portfolio, including the neutral host solutions to enable full indoor connectivity.
Speaker Change: Overall, we saw very good traction in the in the new portfolio in Q4.
Speaker Change: So as you can see we are not standing still we're taking actions to execute on our strategy to ensure that the Arizona remains well positioned for the future. While also laying the foundation to change the overall trajectory of the ran market.
Speaker Change: Second I'd like to provide some <unk>.
Speaker Change: While it's called Mentz on the overall ran market and how we are preparing ourselves for different market conditions and you've seen that's been critical in.
Speaker Change: In 'twenty 'twenty for the overall market continues to be quite challenging and I would say continued to decline during the year.
Speaker Change: However, today, we are starting to see some very positive indications and we have further reasons to believe that the overall market is starting to stabilize.
Speaker Change: And you saw in Q4 sales returned to growth for the first time in eight quarters, increasing by 2% with continued strong growth in North America as well as growth in Europe.
Speaker Change: Growth in data and new applications, that's what's going to drive the market over the medium to long term, but you know ultimately and we've said there's so many times before the near term market recovery is in the hands of our customers.
Speaker Change: But our confidence in establishing market is growing.
Frank: And by positive customer discussions and interactions and that we see a return to our largest markets. The U S as well as Europe. So that I think there Frank drawn their experience we have with the U S market can give us comfort that we're starting to see a change in sentiment.
Frank: But regardless of the market conditions, we need to structurally improve our business through rigorous cost management of course, but also improving our working capital and the capital that we tie up in the business that will strengthen our cash flow and balance sheet.
Frank: So for example, during the past you choose.
Frank: While year on year sexually we have taken a lot of actions to structurally take out costs and you can see the results in our gross margin increasing by more than 500 bps to 44, 9%.
Frank: Market mix.
Frank: IPR licensing revenue of course, and a focus on the profitable segments and enterprise all contributed as well.
Frank: In 2024, total head count internal and external fell by 9400 or 8%.
Frank: So it's just not in our gross margin were restructured improving the profitability, we're actually taking opex out as well.
Frank: Unless you have all seen the fourth quarter included significantly higher bonus provisions than last year, and clearly above normalized levels during the quarter, So underlying opex developed wavelength and fell down or fail.
Frank: Adjusted EBITDA margin increased by 300 bps to 11%, we're not yet where we want to be here, but we're making progress towards our long term goals.
Frank: Going forward, we're going to continue to strengthen our business and focus on operational excellence and we remain committed to our long term EBITDA margin target.
Frank: Over the past 18 months, we have implemented actions to structurally lower our working capital together with a change in business mix. Following the completion of the large rollout project in India that we had in 'twenty to 'twenty three we generated free cash flow of 40 billion during 'twenty 'twenty, four and that puts us in a very.
Frank: <unk> financial position.
Frank: Turning to capital allocation, our first priority is to invest in R&D to maintain and grow our technology leadership across networks enterprise solutions and network Api's.
Frank: Alongside R&D, we prioritize a strong balance sheets unattractive shareholder returns I would also say that we actually have a very well positioned portfolio. Today. So we see possibility to do some smaller add ons bolt ons could be geographic could be technology wise.
Frank: But what we have positions us really well to organically develop the business and we're very satisfied where we are.
Frank: So today.
Frank: You saw the board are proposing a dividend of 285 per share corresponding to a total amount of 9.5 billion kroner.
Frank: I would say this is a testament to the confidence the board housing in our strategy as well as the longer term.
So as you can see it was a strong end to the year.
Frank: But now let me comment more specifically on some of the market develop as we saw in Q4.
Frank: In North America sales increased by 54% in networks saves increased by 70% of course, driven by the rollout of our AT&T contract, but also strong year end hardware demand as significant software traction.
Frank: Without the large customers say.
Frank: Sales in Europe, and Latin America increased by 2%.
Frank: The strength in Europe in particular benefited from the market share gains as strong deliveries.
Frank: Sales decreased in all other regions, specifically Latin America continues to be a market with intense competition and lower customer network investments.
Frank: Southeast Asia, Oceania, and India sales decreased primarily due to lower network sales in India. After a record year 'twenty to 'twenty three.
Frank: Sales in North East Asia, as well as Middle Eastern Africa also slowed this was really due to investments levels slowing down following the recent five G. Buildout in the throne drawn their markets as well as some macro pressures from in Africa that we're all aware of.
Frank: At the same time, we had good customer success and in all of these regions in the quarter. So for example, we announced a multi year contract extension for four G. M. Five G ran with biotech.
Frank: We also had a contract we know nationwide five year deployment for V. M. P T in Vietnam.
Lars: With that I would like to hand over to Lars to go through the financial details alright. Thank.
Lars: Thank you Maria.
Lars: Let me start by giving you some additional points on the group.
Maria: Before discussing the segments more in detail.
Net sales in Q4 amounted to seven to $2 9 billion and organic sales were up 2%.
Maria: North America growth was strong for the third quarter in a row and we also had slight growth in Europe for the second quarter in neuro.
Maria: The other markets declined, particularly India, where investments have normalized after a peak in 2020 free.
Maria: Adjusted gross margin was 46.3% in Q4, an increase from 41.1 in the prior year here.
Maria: Margin improved with supply chain efficiency, the focus on commercial discipline and a favorable market mix.
Maria: Opex in the quarter was $23 8 billion up by $1 7 billion compared to the prior year, mainly because bonus accruals were above target levels in 'twenty four having been below level.
Maria: In last year.
Maria: The cost out activities continue to deliver savings these balanced out salary increases in part to higher bonuses.
Maria: Adjusted EBITDA increased to $10 2 billion with a margin of 14.1.
Maria: <unk> has significant expansion year on year.
Maria: Cash flow was strong at $15 8 billion the.
Maria: The improvements came from improved profitability and lower working capital.
Maria: Let's move on to the results for the full year.
Maria: Okay.
Maria: Net sales amounted to 2200, 47, 9 billion and organic sales declined by 5%.
Maria: Very strong growth in North America was offset by organic sales declines in in all the other market areas.
Maria: The sales decline, which gave a significant volume impact on gross income was more than offset by an increase in gross margin.
Maria: Adjusted gross margin was 44, 9% an increase from $49 six in 2023.
Maria: Margin improved with a favorable market mix cost reduction initiatives, including supply chain efficiency as well as higher IPR licensing revenues and a focus on more profitable market segments in enterprise.
Maria: The resulting gross income was an increase of 7 billion to $111 4 billion.
Maria: Reported opec's was up by $15 2 billion compared to the prior year, mainly because of the intangible asset impairment of $40 1 billion.
Maria: Excluding impairments total Opex was $88 4 billion, which is an increase of 1.9 billion. This is mainly because the higher bonus accrual levels compared to 2020 free.
Maria: R&D investments continue to maintain technology leadership for example to accelerate delivery of some five D features and to further improve operational resilience.
Excluding restructuring impairment and the discontinuation of capitalization of development expenses in enterprise impacts R&D increased by around 1 billion in the year.
Maria: SG&A costs, excluding restructuring and impairments also increased slightly primarily in segment enterprise with investments to improve operational effectiveness.
Maria: Adjusted a beta increased to 27.2 billion. The morning was 11%, marking and almost three percentage point expansion year on year.
Maria: And net income for the full year was 0.4 billion compared to minus 26.1 in 2023.
Maria: Net income in 'twenty free was impacted by the impairment of goodwill of $41 9 billion and in 24 by a noncash impairment charge of $15 3 billion.
Maria: The effective tax rate for 2024 was 28% excluding the impairment charges.
Maria: Cash flow was very strong at 40 billion. The improvements came from improved profitability and working capital, resulting from a favorable market mix customer payments and efficient supply chain management I cover this more in detail later.
Maria: Let's comment on IPR licensing.
Maria: Q4 <unk>.
Maria: Mark the fourth quarter in a row that.
Maria: The new IPR agreement was signed this means at the end of 2020 for most of the top 10 smartphone vendors were licensed for five G.
Maria: IPR licensing revenues increased to 14 billion in 'twenty to 'twenty, four including retroactive revenue of around $1 billion.
Maria: From just over 11 billion in 2023.
Maria: We are at a record run rate of 14 billion in recurring IPR revenue going into 2025.
Maria: There are further growth opportunities with a few additional five key agreements remaining.
Maria: And the potential to expand in additional licensing areas, such as automotive and Iot.
Maria: With that let's move to the financial trends.
Maria: While the market conditions have clearly been challenging we have been seeing a stabilization of sales in Q4.
Maria: The rolling 12 months sales bottomed at Q3 'twenty four.
Maria: The gross margin trend shows that the focus on growing the patent portfolio the improved utilization of supply chain and cost actions are paying off.
Maria: More favorite market makes us also contributed.
Maria: We have seen a favorable development over beta which ended up the year at $27 2 billion up by 27% compared to the prior year.
Maria: The lower level of sales in the first three quarters compared to the previous year and increased operating expenses moderated a bit the margin improvement.
Maria: Let's move to the segments.
Maria: In networks organic sales increased by 5% year on year, North America grew 70% from very low levels last year with contract wins and a strong year end software demand contributing saves.
Maria: Sales in Europe grew slightly.
Maria: In the other markets customers continue to be cautious with our investments and the largest decline was in India, where the investment's level have no normalized after a peak in 'twenty three.
Maria: Networks adjusted gross margin was 49, 1% with a favorable market mix or business mix cost actions and operational leverage in the supply chain all contributing.
Maria: IPR revenues increased and benefiting from a further licensing agreement and contributed to the gross margin improvement.
Maria: Networks adjusted debate the increased to 10.1 billion from $7 4 billion in the prior year and adjusted debate ammonia was 21 six in Q4.
Maria: And 17.5% for 24 overall.
It would be improved due to higher sales and improved gross margins, partly offset by higher opex affected by the before mentioned higher bonus accruals and investments in R&D.
Maria: In segment cloud software and services organic sales were stable, which saves coffee in North America offset by sales declines in the other market areas.
Maria: Adjusted gross margin was 49% improving from the prior year and benefiting from the delivery performance and higher software sales.
Maria: The execution, we'd focus on commercial discipline and accelerate the automation is paying off.
Maria: The improvement in gross margin were offset by higher bonus accruals, reflecting an above target outcome in 'twenty, four which resulted in a bit ammonia or nine 3% in Q4 and three 2% for 2024.
Maria: In enterprise sales declined by 7%.
Maria: Enterprise wireless solutions grew by 19% with strong growth in private five G and neutral host solutions sale.
Maria: Sales in global Communications platform declined 17% impacted by the decision to reduce activity in some countries a focus on more profitable markets and product segments.
Maria: Adjusted gross margin increased to 54, 3% and adjusted gross income increased by 0.3 billion year on year. Despite the sales decline.
Maria: So just the debate the loss was minus $1 2 billion with a decrease year on year, mainly reflecting nonrecurring impacts in.
Maria: In part related to the exit of certain businesses as well as increased investments to improve operational effectiveness.
Maria: The focus on improving the financial performance in the current portfolio continues at the same time as we also invest for the future.
Maria: Turning to free cash flow, which was 15.8 billion before M&A in the quarter.
Maria: And 40 billion for the year.
Maria: We delivered a cash room audio of 16% to net sales for the year, well above our 9% to 12% target.
Maria: The increase in cash flow compared to 23 is due to the earnings growth and very strong working capital S. I mentioned before.
Maria: Working capital benefit from the structural actions, we have taken to improve supply chain cash efficiency and from market mix particular between India and the U S.
Maria: On top of this strong collections and customer prepayments also contributed and this means working capital is now at historic low levels and we expect this to partially reverse in 'twenty five.
Maria: Net cash increased sequentially by $12 3 billion to $47 8 billion.
Maria: And return on capital employed and 24 was 2.5%.
Maria: This includes an over seven percentage point impact from impairments.
Maria: Next I will cover the outlook.
Maria: Turning first to sales for networks Q4 continued the strong trend from Q3, so the 'twenty 'twenty four exit rate is high.
Maria: Despite this we still expect networks Q1 to be broadly similar to the average three year seasonality.
We expect cloud software and services to be similar as well.
Maria: In enterprise sales will continue to be impacted by near term by the decision to focus on profitable markets and products.
Maria: And next turning to profitability in networks gross margin for Q1. The networks gross margin is expected to be in the range of 47% to 49% with some initial impact from the timing of swaps in North America, but still benefiting from a positive market mix.
Maria: And we'd still have significant revenue declines in some markets restructuring is expected to remain elevated in 2025 as we continue to adjust operating model and focus on operational excellence.
Maria: With that I hand back to you with that thank you Lars.
So the global ran market continued to be challenged in 'twenty 'twenty four but I would say we were well prepared for these says we took actions early to adjust our basis for a more realistic levels of demand.
Maria: North America returned to growth in Q2, and we saw a stronger end of the year broadly as our networks revenue returned to growth in Q4.
Maria: Looking ahead, we see further signs of the ran market stabilizing our recent customer discussions indicates an accelerating interest around our programmable networks.
Maria: And in many markets there is a need to invest to keep network performance at the at the competitive level.
Maria: It is encouraging but we recognize that the exact timing of the investments that will be made of course those decisions are in the hands of our customers.
Maria: We will continue to execute on our strategy to capitalize on the evolving market dynamics.
Maria: This strategy is focused on building the industry's best performing programmable networks that the neighbor differentiated services and increased monetization opportunities for our mobile operator customers through new use cases, including exposing network capabilities through network Api's.
Maria: In addition, we remain focused on the things we can impact and that's of course, how we run our business, including cost and working capital management.
Maria: And not really strengthening our product portfolio as well.
Maria: This way, we ensure ericsson continues to be well positioned to create value for its stakeholders when the market fully recovers.
Maria: Our goal is to make Ericsson and more profitable company based on the leading position in mobile infrastructure and to develop new use cases and monetization opportunities. This will change the trajectory of Ericsson, but also the telecom market that I would say the last decades have actually flattened out and and by Chang.
Maria: These dynamics were into a situation, where we see further investments in the network so to sum up in 'twenty 'twenty four we took several critical steps in our strategy and we'll continue doing so in 2025.
Daniel: So on that note I actually I want to thank all my colleagues in the company for all their hard work. Thank you team with that I think it's time for Q&A Daniel.
Daniel: Thanks, Maria will that move on to the Q&A now.
Speaker Change: As a reminder to ask a question you'll need to press star one and one on your telephone and wait for your name to be announced.
Speaker Change: And we ask that if you're streaming the webcast. Please can you meet the audio and on the webcast, while asking a question to minimize any feedback there.
Speaker Change: And as usual can I request one question per participant place. So we have time to hear from as many of you as possible today.
Speaker Change: Operator, if I can ask you to open the line please.
Speaker Change: Safe to say well first question. This morning is going to come from Andrew Gardiner at Citi. Andrew. Please go ahead.
Andrew Gardiner: Thank you Daniel can you hear me we de escalate.
Good morning, guys. Thanks, very much for taking the call I had one on the dynamics in the North American market.
Andrew Gardiner: Go back to the commentary you were making at the time of third quarter. If you'd had a good result than what you were expecting the sequential trend into <unk> with perhaps can be a little softer seasonally off that stronger <unk>.
Andrew Gardiner: As it turns out this morning, you're showing it's very good trends in the U S.
Andrew Gardiner: In particular, you, obviously highlighting the share gains.
Andrew Gardiner: Lars you briefly just mentioned swap outs as well so I was interested in a bit more detail in terms of what's happening in the market.
Andrew Gardiner: What indeed drove that upside relative to your earlier expectations was it with it more share gain under the new contract was it sort of the broader market coming back inventory replenishment.
Andrew Gardiner: But around that would be really helpful.
Speaker Change: Uh huh, Okay, I can take that thanks, Andrew for the question. So good question and and what we have seen in and that's why you see us talk more optimistically and confident about the market starting to recover.
Speaker Change: We actually have seen the the investment levels coming up in North America part of it is of course to replenish from a very low inventory level that we've seen in the industry.
Speaker Change: And and and part of it is of course driven by.
Speaker Change: Quoted the traffic growth underneath for connectivity. So I feel that we saw a little bit broader base of our purchases are in Q4, then we may be expected when Q4 begin began.
Speaker Change: Thank you Andrew.
Speaker Change: Moving to the next question please.
Speaker Change: The next question is going to come from the line of Francois <unk> from UBS Francois Your line should now be open. Please go ahead.
Francois: Hi, Thank you very much for taking my question and ask a question maybe more on the geopolitical side of things.
Francois: We have seen of course, a trump getting into elections and I'm thinking about the tariff.
Francois: Potential and I was wondering you know that you're.
Francois: Given your high exposure to North America.
Francois: Where your prediction is Ethan you know globally, because when I look at your.
Francois: Annual report in 20-F, I know you don't manufacture yourself.
Francois: But you have like a significant portion of your revenues are still in house on the testing and assembly, which seems to be in China, but correct me if I'm wrong.
Francois: And payment outsourcing is a through E M S, which I assume is mostly in Asia. So it seems that mostly.
Francois: Supply chain is coming from Asia, and I was wondering how should we factor the potential of salary for the time.
Francois: And your business. So if you can help on that and you know how does it change your strategy may be doing more in a in local North America that would be helpful. Thank you.
Francois: I can start.
Now if you look at our supply chain and as you mentioned, we have production today in North America. So where we are made in America for America, and we have in Latin America, we have in Europe, we have in in Asia, We have in India. So we have pretty broad based.
Francois: Production capacity.
Francois: We are utilizing and we have the opportunity to move production between the different sites both in our internal but also with external manufacturing sites.
Francois: Sites that we have.
Francois: So that is it's not something that we do it slipped it depends a little bit on the product mix et cetera of course, but we have this opportunity to work with the supply chain, depending on what kind of decisions that we will see ahead of us having said that of course tariffs.
Francois: Could have an impact going into 2025, but I think I think we're all waiting a little bit to what is going to happen there, but we are working on that continuously trying to balance and utilize the system we have.
Francois: And that's as you know we built a factor in the U S. I would just add that.
Francois: So we commissioned at I think 2019 year 'twenty 'twenty, it's a few years ago.
Francois: In in reality preparing for a different geopolitical situation.
Francois: And and you know I think the whole world is moving from the coast optimized supply chain to a resilience.
Francois: You need to factor in resiliency in the supply chain and that's why we built up the U S factory and we're increasing the we're investing to increase that capacity in North America as well and then we'll we'll all have to see just like door says how will this look in reality and then adjust as much as possible. So I'd I think.
Francois: You know, where we just have to see without question.
Speaker Change: I think goes off Madison, England, Terry it's we normally it's not a general tariffs it can be different that can be exemptions et cetera, and we have seen that in the past where critical products for our markets has been exempted from <unk>.
Speaker Change: Tariffs etcetera. So so it's it's too early to say, what's going to happen but of course, we are working and following this closely.
Speaker Change: Okay. Thank you can have a follow up or should I go to the queue.
Speaker Change: If it's very brief we can take it.
Speaker Change: Yeah, I mean, just on the software dynamics had you ended the year with a good software mix a.
Speaker Change: Based on your comments I was just wondering if you think that's going to continue.
Speaker Change: In 25 or early 'twenty five.
Speaker Change: That's it thank you.
Speaker Change: I think when it comes to a single quarter and especially the fourth quarter.
Speaker Change: We tend to have a higher.
Speaker Change: Software mix in this year S Whalen, and maybe even a little bit.
Speaker Change: The exact great that in the quarter so to.
Speaker Change: To say that the trend is maybe too early to talk about.
Speaker Change: Thanks, Francois, but I think we should add there the industry.
Speaker Change: If you think what's actually happening when we horizontal is the network at which as you know that's what we are have been working on that's the whole basis for the contract win in the U S as well as in Europe.
Speaker Change: It's an increasing amount of software that's structurally it's going to come.
Speaker Change: And then Q4 it says law said, but structurally we are going to go into a situation of more software as opposed to hardware.
Maria: Thanks Maria.
Speaker Change: Moving now to the next question say Simon Garner from a B G. Your line should now be open do you Harris salmon.
Speaker Change: Yes, I do and good morning, and thank you for the presentation I'd like to expand a bit on the traffic growth here and because you do acknowledged in your latest mobility reported that it continue.
Speaker Change: Continuously at decelerating here, one could potentially argue that this is waiting on the demand for your products.
Speaker Change: Data traffic is still growing.
Speaker Change: You do also expect this to continue.
Speaker Change: Factor I assume that this shift is making you put even greater emphasis on margins over the longer term, particularly if this trend.
Speaker Change: Thank you.
Speaker Change: Thanks, Hi months or is it is a very good question you know data traffic growth will be able to underlying demand for our products. Once you build that coverage is truly only.
Speaker Change: Data traffic growth and under is right as you say it is gradually.
Speaker Change: Declining a bit and and that's fair.
Speaker Change: I would say, though is what we are expecting to see in that actually so it's a different question a bit.
Speaker Change: But when you start to think about future applications. So far we come from a world, where it's being mobile broadband to the consumer.
Speaker Change: That's been demanding one type of traffic.
Speaker Change: What we see now in the in the future it's actually.
Speaker Change: A wide range of applications coming up is there anything from a R V. Our glasses, but I would single out one trend that's actually going to be very big for the for the traffic and start to impact network investments and it's the whole AI.
Speaker Change: So far a I've been mostly on the training side and that's the that's fine, but we're starting to see that coming into applications in enterprise says I'm sure they're gonna be consumer applications. They may well be more voice controlled so youre using boys cirstea as quality operating system.
Speaker Change: In that World, we see also a changing requirement on the network. So the network needs to be prepared for the AI traffic.
Speaker Change: It's going to require more uplink is going to require different performance of the network that actually I think may be more important in there in the next few years as a traffic definition. So yes overall traffic is probably going to continue to taper down, but I think the a D. A.
Speaker Change: Demands coming from the new applications that run on top will actually materially impact the way you need to invest in the network that also need of course to impact the way you get monetized for the network and that's why I think we're very excited about where we are on the demand for for network equipment, but also the ability.
Speaker Change: With it too to monetize that through network. A P is I think they all are starting to come together, making us a critical component in there in how AI will be deployed so I I think we should when we think about the future there is actually one.
Speaker Change: I mean, if you only look at consumer mobile broadband you can get a bit.
Speaker Change: It gets a bit negative.
Speaker Change: But I actually think we need to look at the other side, which is starting to happen under very different pace.
Speaker Change: I wouldn't rule out that's actually what we see starting to happen in North America, while we actually get to demand picking up there.
Speaker Change: Because the data traffic is perceived growing at about the same rate as before but the nature of the traffic is starting to change and I think that that's what what should bring us excitement on on on on the focus anyway, I think we need to have a very strong focus on operational excellence and for me.
Speaker Change: So that if we focus on operational excellence, we can actually say okay. If they are if the additional exciting data traffic growth takes 12 months 24 months or 36 months or a meaningful at least we have a very solid core business. So the focus on the margin is actually something we're not going to drop so we need.
Speaker Change: To have that as well, but the other part is equally important.
Speaker Change: Thank you so much may I have a small follow up at Simon I think we better just move on just because we have quite a long queue, but thank you for the question. Thank you so much feel free to join for a follow up at the back of the queue.
Speaker Change: If we can move on now to the next question Sebastien <unk> from Kepler. Your line is now open sebastien.
Sebastien: Yeah, Hey, everyone and thanks for taking my question. One question regarding his image falls, there could be quarters or would you even need triple Zheng Yan.
Sebastien: Kidney attached to that do you see any Jennifer it's easily two five G at Vince.
Sebastien: Going forward it seems the U S will be at daus up potentially preparing for more haul out of <unk> that could affect.
Sebastien: Perfect job mix in the coming quarters.
Sebastien: <unk>.
Sebastien: If I start with the mix of your familiar.
Speaker Change: From a geographical perspective.
Sebastien: We will we haven't had quite good.
Sebastien: The Gulf in the U S. As you know in North America.
Sebastien: The growth rate as such will come down as we more coming to stabilize rollout etc. Steve.
Sebastien: Still a bit of support but of course with the very high growth you have seen in the past quarters, we will calm down.
Speaker Change: Yeah and then.
Speaker Change: If there are then coming stabilizing in the market some recovery in some regions that could have somewhat of a negative market mix, but also on the rollout mix as such within our North America. So that is what we are trying trying to to highlight here and I think when it comes to the <unk> advanced rollout I think Hadley.
Speaker Change: That one yeah.
Speaker Change: I think it's it's a very good question, we starting to see some traction on five G advanced.
Speaker Change: And so we're we're we're in a very good discussions so I I think that's the next step that's going to again give you there the high performance networks, you're going to need for the future type of traffic. So we're quite excited about that but it's it's it's I would say if it impacts the next few quarters I think that's too much too.
Speaker Change: To say it but we'd rather encouraged by the traction we see.
Speaker Change: Okay. Thank you.
Speaker Change: Thanks for the questions Sebastien.
Speaker Change: Moving on to the next question please.
Speaker Change: Next question is coming from Daniel Djurberg at Handelsbanken, Daniel Please go ahead.
Speaker Change: Thank you Danielle and good morning, Yeah, a question on capital allocation of Airbus deal. It's a broad question, but the net cash increased $12 3 billion.
Speaker Change: Gross cash of 76 million after Q3.
Speaker Change: 38 billion and then you will have a connective, adding some 10 11 billion to this.
Speaker Change: And you propose some $9 4 billion in dividends, Hence you will have a huge cash pile of also what's after that dividend. So.
Speaker Change: Let's comment on the question is really how are you.
Speaker Change: Think of there.
Speaker Change: Capital allocation, the cash you need for the operation and a potential for M&A.
Speaker Change: Extra dividend buyback or so or if you.
Speaker Change: Expect to do another quite lofty expectation or anything else.
Speaker Change: We should bear in mind. Thank you.
Speaker Change: When it comes I'll start yeah suggests when it comes to capital allocation of ink.
Speaker Change: As you know our focus is first priority is to ensure.
Speaker Change: Solids R&D. So we can continue we are long term.
Speaker Change: We are in techno leadership, and we need to ensure that we.
Speaker Change: Continue to invest to maintain our technology leadership, so that that is key for us.
Speaker Change: Yes, we're coming out with the.
Speaker Change: Good net cash position, but you can always argue it's coming back to more historical levels. When it comes to M&A I think.
Speaker Change: What we're looking at this area that we're possibility could be is when it comes to bolt ons within the product portfolio or some if it there are geographical expansion et cetera, but not a name any major investments in that area.
Speaker Change: And then.
Going forward, we have and the board has proposed a any increase of dividend to show.
Speaker Change: Gradual.
Speaker Change: The improvements in the increases in the dividend capacity and then going forward I think that will probably be a question and more coming into the coming years when it comes to.
Speaker Change: No further dividends or our allocation to the shareholders.
Speaker Change: And I think Daniela I also want to.
Speaker Change: Take care of it may be another tack on this and.
Speaker Change: As I said you know we I think we can organically developed power portfolio, we have a strong position on the on the mobile network side and what we have in the enterprise side.
Speaker Change: Actually we have we think we are we have a very solid base to develop that trouble, so where we're very comfortable with our starting position.
Speaker Change: That means that we may add some geographic coverage could add technology components in there, but I'll also say that you know.
Speaker Change: We just think that we would do a bigger acquisition, we're not going to do that for the very simple reason, we need to deliver on the ones. We've done. So I think we need to show that we can create the value for the shareholders and strengthening the company with the investments we have done. So we have a lot of work to do that before I would.
Speaker Change: Even remote they think about that question. So that's not part of out of the way we work and what we are focusing on there.
Speaker Change: Where we're of course always in the M&A market, but it's going to be these smaller add on bolt ons and geographic.
Speaker Change: Expansions, that's what we will be focusing on.
Speaker Change: Okay.
Speaker Change: Thanks for the question Daniel.
Speaker Change: Next question please.
Speaker Change: Next question is from Jacob Please turn at Exane BNP.
Speaker Change: Jacob.
Speaker Change: Lines open.
Speaker Change: Thanks, Danielle hopefully you can hear me, okay and.
Speaker Change: I appreciate you haven't guided specifically for 2025.
And I presume that sort of reflects some of the sort of broader geopolitical uncertainties, but I was just hoping you could maybe give us a little bit of sort of qualitative color around some of the puts and takes for revenues and margins. You've obviously mentioned potential risks around tariffs and sort of market growth are there any other things that we should bear in mind for revenues for example.
Speaker Change: You had a number of one offs.
Speaker Change: In 'twenty four and then at the margin level can you maybe just help us understand do you see your margins and sort of broader cost control.
Speaker Change: Does that.
Speaker Change: Cost savings in 'twenty four as you sort of cut back as revenues are under pressure.
Speaker Change: Some of that going to reverse so could we start to see some margin pressure.
Speaker Change: Coming as you start paying people more bonuses again.
Speaker Change: Maybe some of the mix is a little bit different as places like India start to grow again to just sort of interested on anything you can say qualitatively on 25. Thank you.
Speaker Change: When you start on topline and I can walk down the <unk>.
Speaker Change: Can margins and costs.
Speaker Change: Yeah, I, you know I I think what we see.
Speaker Change: We come out of a parrot key areas, where 'twenty three 'twenty four I think we had.
Speaker Change: You know call it almost two years, so continuously falling sales.
Speaker Change: What we see is a much more stabilizing outlook, so that trend of falling sales.
Speaker Change: The fees you know like like we saw.
It's always dangerous to say that everything has changed but but at least we get more comfortable in the outlook of the establishing and actually returning to some more.
Speaker Change: Historic pattern, so I feel.
Speaker Change: Phil on the on the sales side at least what we can see is is a more positive outlook than we've seen in the quarters before.
Speaker Change: So in that sense, we've gotten more more positive.
Speaker Change: And what's further given that Reis simpler pulsatile positivism is actually that the U S is returning to a stronger growth.
Speaker Change: The numbers don't focus on the quarter or year over year increase in North America, because that's from a very depressed level in the year before but.
Speaker Change: But think about it much more as we're seeing a broader based recovery in North America, it's not only one contract, it's actually broader and when we start to see that with the Frank drawn their characteristics of the North American market. They were the first to really deploy five day than the other markets came it gave south Dakota for tattoo.
Speaker Change: Market outlook, establishing as he is leaving the last few quarters. So we see that to be.
Speaker Change: Be a solid indication that that we are in a in a good spot.
Speaker Change: Then globally.
Speaker Change: What we have done.
Speaker Change: I would say over the past.
Speaker Change: A few years is actually to reduce the the the sensitivity to geographic mix. So we have much less.
Speaker Change: Our exposure to different regions growing differently, what may actually impact more on margins is the amount of rollouts.
Speaker Change: You have a large amount of rollouts it actually puts a bit of pressure on the margins.
Speaker Change: And that's more important than when you think about the future, we're probably going to see the AT&T contract moving to more of Rollouts is swap outs that we saw in any other year before et cetera that may be you know call it impacting more than necessarily the sales mix, but.
Speaker Change: But if you look the U S used to be or has almost always in our industry being the front market coming back to growth and a broad based growth, we see Europe coming back to a bit of growth, it's going to be a bit choppy, it's always varies by quarter, but but at least it's getting more positive we see a share in the same way.
Speaker Change: Yeah. So so the the market is shaping up to be a relatively no. It's it's improving and stabilizing.
Speaker Change: Yeah, we are.
Speaker Change: We're still in a downward trend in.
Speaker Change: Outside of U S and Europe, and when that will we see as we mentioned in Africa with au they have they're pretty hard hit by Yo Yo politics and are the difficult test AC so and the competition in Latin America. So it is hard to see where or where are they.
Speaker Change: Whereas the trajectory.
Speaker Change: Turning there so to say and when it comes to Mod margins I think you mentioned it there will be a bit of mix on the margin so that could be some pressure.
Speaker Change: Not substantial but holding us back somewhat and on the cost side I think coming out of of the year here in.
Speaker Change: In twenty-four lithium somewhat elevated.
Speaker Change: Bonus levels, but going back a couple of years if.
Speaker Change: You could argue that 23 was really a low year compared to the historical average.
Speaker Change: So going looking into 'twenty five for Opex that that should be similar levels, because we have an underlying cost inflation hurting opex and of course cost of goods sold as well, but we are continuously working with the cost reductions unless I meant we mention there in the outlook on the restructuring we will they will be maintained on a high level.
Speaker Change: To mitigate some of this cost inflation pressure that we still see.
Speaker Change: Understood. Thank you.
Speaker Change: Jacob moving to the next question please.
Speaker Change: The next question is coming from the line of Andreas Yeltsin economy and jazz. Please go ahead.
Speaker Change: Good morning, everyone.
Speaker Change: Like to go back to Daniel's question on capital allocation, if I may and this is just so we understand everything everyone.
Speaker Change:
Speaker Change: As Daniel said you have to have a strong cash position you will have proceeds you will have free cash flow also for 2025, I guess given that you see a stabilizing outlook and just from a philosophical.
Speaker Change: Wei.
Speaker Change: What is the arguments for.
Speaker Change: A company like Ericsson to have to have a net cash position I understand you have had historically as well, but what is the reasoning behind that if I may.
Speaker Change: I think it is our firm commitment to really ensure that we have.
Speaker Change: Capacity to do the investments in R&D.
Speaker Change: Overtime.
Speaker Change: I think.
Speaker Change: Yeah that there has been the leading start guiding star four four for the company for quite some years sent.
We also have if you go long back into history.
Speaker Change: Felt that that has been hurting our ability to invest and when having not the right cash position. So to say so I think that is call. It a bit of conservatism on that end, but I think coming through 2025 here, we will continuously evolve and assess.
Speaker Change: What is the right.
Speaker Change: Our capital structure and of course started discussion internally together with the board and then at that at a later stage.
Speaker Change: Externally also.
Speaker Change: Communicate how we look upon this.
Speaker Change: One philosophical thing Andre I'll start there, we very rarely talk about but actually our customers care of it.
Speaker Change: You know they typically make 10 year commitments when they put our networks in there.
Speaker Change: For Asia. So they they would prefer that we are solid from a financial perspective. So they can comfortably make that commitment right. So so to avoid to have that discussion and customer interactions, it's better to be maybe a bit conservative us as Laura said on.
Speaker Change: The catheter, we talk a little bit less about that.
Speaker Change: But I think that's been a factor and here I think it's going to take some time and has taken time for the customers to realize that we are increasingly becoming a software business. When we were if.
Speaker Change: If you go back 15 years, where we're much more hardware hardware centric and then of course it was a bigger.
Speaker Change: Quest jump for the customers as you move into becoming a software.
Speaker Change: Vendor I think that capital.
Speaker Change: I mean, the the working capital becomes less and less and less so I do I do think that that's going to change, but so far that's been one of the things that.
Speaker Change: It's actually been important in order to.
Speaker Change: To capture customers and you know we come from this bolt in 'twenty seven.
Speaker Change: 17, when when this was a topic in every customer interaction hasn't been since then but every customer I met were focusing on Ericsson gonna stay alive or you're going to start etcetera. That's that's not a question anymore, but but we want to also be a bit prudent in that perspective.
Speaker Change: Thank you very helpful. Thanks.
Speaker Change: Thanks, Andreas maybe onto the next question please.
Speaker Change: Next we have Sandeep deshpande from JP Morgan Sandeep. Please go ahead.
Speaker Change: Sandy we didn't he yet can you check your mute.
Speaker Change: Yeah, Hi can you hear me, we do now yes, yeah hi.
Speaker Change: I have a quick question Blake about you talked about stabilizing our market end market and particularly North America, but what is it the share gains that is causing the.
Speaker Change: Improvement in the North American market or is it the five D had one what is the next product to drive the growth from here given that <unk> has been rolled out in the U S. At this point.
Speaker Change: And somewhat in that the market is clearly not as much in the U S.
Speaker Change: But the other part of the question is do you need.
Speaker Change: You need to happen anytime soon and what is the timing of spring season, what I'm trying to understand is timing of new product to drive this continuing growth that you've seen in the second half of this year or will we see a situation where at the second half of this year when the comps become more difficult and the growth suddenly weakens again.
Speaker Change: Well if you bet first of all I think 2023 was a very low year. So if you look at the percentage growth in North America, It's actually I wouldn't focus on that that's not that's not going to be the predictive power going forward right. So and our market is not that type of high growth that we saw in Q4, but.
Speaker Change: If you look going forward and if you actually look a little bit and dissect Q4 would be.
Speaker Change: What you see is of course that are part of the AR increase in North America comps for the market share gain.
Speaker Change: From that big contract no doubt about that that's an important driver that moved into deliveries during the second part of the year. We started some in Q2, but in reality was second part of the year. So that of course helped us but as I said, it's also a broader based recovery and and and then you start to say why is that happening.
Speaker Change: Well.
Speaker Change: First of all five D has not been built out.
Speaker Change: Five G is is the early stages still.
Speaker Change: So if you take the North American market five G. Standalone is not rolled out.
Speaker Change: I think you've probably live in London, London, I mean that in Europe. It's it's very limited build out five G is hardly built out.
Speaker Change: Most of the time when you get the five G icon on your phone you're basically on dynamic spectrum sharing using afford G spectrum.
Speaker Change: So five D has not been built out we're still very early in that buildup. That's what we're starting to see North America. The five D. There.
Speaker Change: The demand for five G comes from growing five G traffic and we're still early in that Buildout. So so I'm I actually.
Speaker Change: I don't know if we have not maybe being clear on this historically, but it's a it's actually a low percentage that's been built out for and to have five G. You need to build out mid band that's very limited buildout to be honest. So we are still very early in the five G build out cycle.
Speaker Change: And and if you look at the at what you would expect.
Speaker Change: In the future you should expect that five day, we'll have more.
Speaker Change: Base stations in reality than the four <unk> network, because its that higher frequency. So you need a denser grid. So if we're going to get the full benefit of five D with with the low latency the highest performance the ability to actually have many users.
Speaker Change: Users in one sell side, we need to see much more build out and where we were actually very early in that so I I think the notion that that new growth it actually drives from the growth in traffic and the underlying traffic and that's migrating from four G over to five G.
Speaker Change: And you will see it changing nature under five G from consumer applications basic mobile broadband download a video stream music into much more advanced applications voice S. A operating interface.
Speaker Change: Going to see a high traffic and all of that will start to drive traffic in a new way.
Speaker Change: That's why you'll see us introduce new type of products new type of massive my most but it's not saying that it has to be a new generation rent is actually introducing.
Speaker Change: Call it improved and strengthened product in the portfolio that improved energy efficiency, but also cell edge performance for example.
Speaker Change: Can I touch on six G, which which is a very good question. It populates all fine.
Speaker Change: I mean 60, if you if you think about it as a technology, you're probably going to get to introduce 2030.
Speaker Change: No. It's it's something on that timeframe, but what's more important is six G is actually an evolution of five G. So we should think of of six did not say.
Speaker Change: You know new type of a generation, where where you know you upgraded from three to four <unk> or four to five G was kind of a before you need also to upgrade the whole network well the five G. M. Five G advanced even more so will be cloud based you will have a new.
Speaker Change: <unk> type of principles be structured in a horizontal way and 60 will be more of an evolution on that so if you're going to move into six G. You actually need to have the five D network and the architecture of high G. Built out already then you can benefit from adding new frequencies you capabilities to 60 will Gabe.
Speaker Change: So so I encourage you not to think of six G. S. A as a normal.
Speaker Change: The new generation, it's actually more of an E G.
Speaker Change: Generally our cogeneration, so it's going to change the nature of the industry and I think this is important when we think about the the horizontal ization.
Speaker Change: Will actually allow that our customers do operate or not to have these cycles and investments is much much more smoother investments, but that means for US also we are not going to see those cycles in the future much more smoother based on the development of the demands of the network quality traffic volume N type.
Speaker Change: Traffic, so I think we're entering.
Speaker Change: A new phase here, where the where our where our customers will will look different we will look different but.
Speaker Change: But I think that's actually for us, it's a positive with less hardware components more software.
Speaker Change: Content on our sites.
Larry: Thank you Larry.
Speaker Change: Thanks for the question Sandeep.
Speaker Change: We've got time for one very short final question Monilia for time.
Speaker Change: We can take the last question please.
Speaker Change: The last question is coming from Yun Kim Canal at D. M. B Kim. Please go ahead.
Speaker Change: Thank you and good morning, so in the 234.
Speaker Change: The progress in our networks and that's really a stolen attention here and that's been a stellar performance.
Speaker Change: But cloud software services here.
Speaker Change: Even including the IPR catch up payments to the margin levels here on our operating profit levels have been fairly flattish.
Speaker Change: So can you comment a bit on what do you want to see in order to improve this trend going forward and in relation to the more long term, 15% EBITDA target for the group.
Speaker Change: Where do you envision cloud software services margins in order to deliver on that.
Speaker Change:
Speaker Change: When I think.
Speaker Change: Sorry.
Speaker Change: When it comes to close so we see actually a good underlying improvement it doesn't have it all the same swings are.
Speaker Change: And that you are having a network business, which is quite different that's more of a you have the whole service component Internet etcetera, sweat which is.
Speaker Change: Quite a different margin profile on that.
Speaker Change: It requires what we have done there continued commercial discipline also.
Speaker Change: Driving the cost efficiency and the whole delivery that we have in in cloud software and services, but also to improve margins further going forward and increase this pace, we need to continue to drive also top line here and start thinking on how do we address our growth.
Speaker Change: Areas within the segments, where we are active there.
Speaker Change: And that's that piece of work that we are going into now so that would be so let's say the add on from the current strategy going forward.
Speaker Change: And I think that they are a good plants and go hard work in that to make that happen and we should see some signs of that.
Speaker Change: Already now in 25, I believe but also I think what they have done though is to really prioritize different parts of the group and a reduced cost and some other areas really to make sure that we end up in the right.
Speaker Change: Of course balancing cost levels in different parts of winning cloud software and services. So they should be able to gradually continue this mall EBIDTA margin improvement journey.
Speaker Change: And to start getting towards more in the <unk>.
Speaker Change: <unk> long term double digit level here.
Speaker Change: Okay.
Speaker Change: Thank you very much.
Speaker Change: Thanks Kim.
Speaker Change: Thanks, everyone for joining that now concludes the Q&A session. Thank you.
Speaker Change: Okay.
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