Q1 2025 Telefonaktiebolaget LM Ericsson Earnings Call

Unknown Executive: Hello, everyone, and welcome to the presentation of Ericsson's first quarter 2025 results.

Hello, everyone and welcome to the presentation of Ericsson is first quarter of 2025 results were.

Daniel Djurberg: With me here in the studio today are Borja Ekholm, our President and CEO, and Lars Sandstrom, our Chief Financial Officer.

Speaker Change: With me here in the studio today are Barry I call them, our president and CIO and Lockdowns from our Chief Financial Officer.

Unknown Executive: As usual, we'll have a short presentation followed by Q&A, and in order to ask a question, you'll need to join the conference by phone. Details can be found in today's earnings release and on the Investor Relations website. Please be advised that today's call is being recorded and that today's presentation may include forward-looking statements. These statements are based on our current expectations and certain planning assumptions, which is subject to risk and uncertainties. The actual results may differ materially due to factors mentioned in today's press release and discussed in this conference.

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 site.

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.

Speaker Change: The actual results may differ materially due to factors mentioned in today's press release and discussed in this conference call.

Unknown Executive: We encourage you to read about these risks and uncertainties in our earnings report as well as in our annual report.

Speaker Change: We encourage you to read about these risks and uncertainties in our earnings reports as well as in our annual report.

Unknown Executive: I'll hand the call now over to Borja and to Lars for their introductory comments. Great.

Speaker Change: I'll hand, the call now over to barrier into allows for that introductory comments.

Unknown Executive: Thanks, Daniel.

Borja Ekholm: And good morning, everyone. And thanks for joining us today. So we executed well in Q1, despite the challenging and fast-changing macro backdrop. Organic sales were stable with strong growth in market area Americas. Gross margin came in at 48.5, and we delivered an EBITDA margin of 12.6%. The improvement that we saw was broad-based across all segments and market areas. And it's really thanks to strong execution of our plan. Cloud software and services can call out a bit because it also had the first positive first quarter ever. We also continue to make good progress against our strategic priorities in the quarter by strengthening our leadership in mobile networks and announcing new partnerships that will accelerate the development of programmable networks with differentiated connectivity and open API architecture.

Speaker Change: Great. Thanks, Danielle and good morning, everyone and thanks for joining us today, so we executed well in Q1, despite the challenging a fast changing macro backdrop.

Speaker Change: <unk> sales were stable with strong growth in the market there yeah Americas gross margin came in at 48.5, and we delivered an EBITA margin you don't try to 0.6% the improvement that we saw was broad based across all segments of the market. There, yes, and this is really thanks to strong execution of our plans.

Speaker Change: Cloud software and services kind of call out debates because it also had the first pulsative first quarter ever.

Speaker Change: We also continued to make good progress against our strategic priorities in the quarter by strengthening our leadership in mobile networks, and then now see new partnerships that will accelerate the developmental program, but networks with differentiate your connectivity and open API architectures.

Borja Ekholm: In mobile networks, we expanded our leading portfolio and we're on track to offer a portfolio of 130 radios this year that all support programmable networks. We also announced the first programmable network in Asia-Pacific with Telstra in Australia. In enterprise, we're seeing improved commercial traction as customers are moving from proof of concept into commercial deployment. One example here is Jaguar Land Rover that's implementing a private 5G network to fully digitalize their manufacturing. Again, benefiting from the flexibility of a 5G network. Another is in network APIs, where the top three US operators have announced they'll launch a fraud detection API this year in partnership with Aduna.

Speaker Change: In mobile networks, we expanded our leasing portfolio and we're on track to offer a portfolio of 130 radios. This year that all of the support programmable networks.

Speaker Change: We also announced our first programmable network in Asia Pacific with 10 straight in Australia.

Speaker Change: In enterprise, we are seeing improved commercial traction as customers are moving from proof of concept into commercial deployment. One example, here is Jaguar land Rover, that's implementing a private five G network to fully digitalize their manufacturing.

Speaker Change: Again benefiting from the flexibility over five G network.

Speaker Change: But now there is a network a P ice where the top three U S operators have announced the launch of fraud detection API. This year in partnership with that do not.

Borja Ekholm: As you may recall, Aduna is the joint venture we announced last year to aggregate and sell network APIs. So we now continue to see the Network API ecosystem scaling up with additional partners joining Eduna and the first early revenues coming in. So we're seeing good momentum on our strategy built on programmable networks offering differentiated services, which will allow new ways for our operator customers to generate new revenue sources on their network investments. Of course, the current macroeconomic turmoil and tariffs are impacting our industry, and we will not be immune. We've taken actions over the many years to actually build resilience into our supply chain, including how and where we develop and manufacture our products.

Speaker Change: As you May recall are doing nice to joint venture, we announced last year, so aggregate the cell network api's.

Speaker Change: So we now continue to see the network API ecosystem scaling up with additional partners joining are doing now and the first early revenues coming in.

Speaker Change: So we're seeing good momentum on our stress did you built on programmable networks offering differentiated services, which will allow new ways for our operator customers to generate new revenue sources on their network investments.

Speaker Change: Of course, the current Mac, no macroeconomic turmoil and Terry it's already impacting our industry and we will not be immune.

Speaker Change: We've taken actions over the many years to actually build resiliency into our supply chain, including how and where we develop and manufacture our product.

Borja Ekholm: So our focus remains on controlling what we actually can control, including, of course, pricing and spending. and the actions we've taken position Ericsson well to succeed across varying market conditions.

Speaker Change: So our focus remains on controlling what we actually can control, including of course pricing and spending.

Speaker Change: And the actions, we've taken position, Eric so well to succeed across varying market conditions.

Borja Ekholm: Let me now comment further on the market development we saw in Q1. As you know, in February, we announced the consolidation of our regional structure. So this is the first quarter with two new market areas, market area America's and market area Europe, Middle East and Africa. In market area America, sales increased by 20% year over year, with good growth in North America, partly offset by lower sales in Latin America. where we of course face intense competition from the Chinese vendors. Networks grew strongly in North America, benefiting from our previous contract wins, but I would like to single out it's also from the accelerated network investments by the other And it's worthwhile to remember that historically, North America is a frontrunner in the adoption of new technology, and thereby often a leading indicator for other markets.

Speaker Change: Let me now comment further on the market development, we saw in Q1.

Speaker Change: As you know in February we announced a cold so today it shouldn't have a regional structure. So this is the first quarter with two new markets areas market area Americas in market area, Europe, Middle East and Africa.

Speaker Change: In market area Americas sales increased by 22% year over year with good growth in North America, partly offset by lower sales in Latin America, where we of course face.

Speaker Change: Intense competition from the Chinese vendors.

Speaker Change: Networks grew strongly in North America benefiting from our previous contract wins, but I would like to see them get out. It's also from the accelerated network investments by the other customers.

Speaker Change: And it's worthwhile to remember that historically North America is a frontrunner in the adoption of new technology, and thereby often a leading indicator for other markets.

Borja Ekholm: Sales in Europe, Middle East and Africa declined by 7% year over year, and there you have of course that Europe was stable, and that was supported by market share gains and network modernization. In Southeast Asia, Oceania and India, sales decreased by 17% year over year, as a result of more normalized operator investment levels in India. And here, you remember, we had a relatively high level in Q1 of last year. Lastly, sales in Northeast Asia slowed. This was due to reduced customer investments in some 5G frontrunner markets.

Speaker Change: Sales in Europe, Middle East and Africa declined by 7% year over year and there you have of course that Europe was stable.

Speaker Change: And that was supported by market share gains and network modernization.

Speaker Change: The southeast Asia, Oceania, and India sales decreased by 17% year over year as a result of more normalized operates or investment levels and in India and here, you'll remember we had a relatively high level in Q1 of last year.

Speaker Change: Lastly, say see northeast Asia slowed this was due to reduced customer investments in some five gave from drawn their markets.

Lars Sandström: With that, let me hand over to Lars to go through the financials in detail. All right.

Speaker Change: With that let me hand over to Lars and to go through the financials in detail alright.

Lars Sandström: Let me start by giving you some additional points on the group before discussing the segments more in detail. Net sales in Q1 amounted to $55 billion, and organic sales were stable year-on-year. Reported sales increased 3%, including a currency benefit of $1.8 billion. North America growth was strong for the fourth quarter in a row and sales in Europe were stable. Sales in the other markets declined, particularly in India, which had a relatively strong Q1 2024, and in the Middle East and Africa. IPR revenues slightly increased. The run rate exiting Q1 is approximately $13 billion. Adjusted gross margin was 48.5% in Q1, an increase from 42.7% last year.

Lars: Let me start by giving you some additional points on the group before before discussing the segments more in detail.

Lars: Let's say, it's in Q1 amounted to 55 billion.

Lars: And organic sales were stable year on year.

Lars: Reported sales increased 3%, including a currency benefit of $1 8 billion.

Lars: North America growth was strong for the fourth quarter in a row and sales in Europe were stable.

Lars: Sales in the other markets declined, particularly in India, which had a relatively strong Q1 'twenty 'twenty four.

Lars: And in the Middle East and Africa.

Lars: IPR revenues slightly increased the run rate exiting Q1 is approximately 14 billion.

Lars: Adjusted gross margin was 48, 5% in Q1, an increase from $42 seven last year.

Lars Sandström: margin improved benefiting from product and market mix as well as cost reduction action. Operating expenses were $20.5 billion, flat compared to the prior year. A negative currency impact of $0.5 billion was offset by lower amortization of intangible assets. adjusted the beta increased by 1.8 billion to 6.9 billion. In Q1 2024 we had a one-time gain of 1.9 billion. This quarter the beta was supported by increased gross income and the beta money was 12.6 percent. We also had a currency benefit of 0.4 billion.

Lars: Margin improved benefiting from product and market mix S way less cost reduction actions.

Lars: Operating expenses were $20 5 billion flat compared to the prior year and negative currency impact though.

Lars: To your point 5 billion was offset by lower amortization of intangible assets.

Lars: Adjusted EBITDA increased by $1 8 billion to $6 9 billion in.

Lars: In Q1, 2024, we had a one time gain of $1 9 billion.

Lars: This quarter the beat that was supported by increased gross income.

Lars: They beat him when he was $12, 6% you also had a currency benefit of 0.4 billion.

Lars Sandström: Cash flow was 2.7 billion, a slight decline compared to last year on the back of an exceptionally strong Q4 with early payment.

Lars: Cash flow was $2 7 billion.

Lars: Slight decline compared to last year on the back of an exceptionally strong Q4 with early payments.

Lars Sandström: Let's move on to the financial trends. While the market conditions have clearly been challenging, we have seen a stabilization of sales. Rolling 12-month sales bottomed in Q3 2024. The growth margin trend was driven by product and market mix, supply chain efficiency and cost action. IPR Growth also have contributed. And we again saw favorable EBITDA development, although partly offset by lower sales and somewhat higher operating expenses.

Lars: Let's move on to the financial trends.

Lars: While the market conditions have clearly been challenging we haven't seen a stabilization of sales rolling 12 months sales bottomed in Q3 'twenty 'twenty four.

Lars: The gross margin trend was driven.

Lars: By product and market mix supply chain efficiency and cost actions.

Lars: Our growth also have contributed.

Lars: And we again saw a favorable beta development, although partly offset by lower sales and somewhat higher operating expenses.

Lars Sandström: Let's move to the segments then. In networks, sales increased by 6% year-on-year to $45.6 billion, including a currency benefit of $1.1 billion. So organic sales increased by 3% a In sales in the market area America sales grew from 38% and here we benefit from contact wins and accelerated network investments in North America.

Lars: Let's move to the segments then.

Lars: Okay.

Lars: In network sales increase by 6% year on year to $45 6 billion, including a currency benefit of $1 1 billion. So organic sales increased by three percentage points.

Lars: Is sales in the market area of America sales grew from grew.

Lars: Grew 48%.

Lars: And here, we benefit from contract wins and accelerated network investments in North America.

Lars Sandström: which reflected in part some tariff uncertainty. Other market areas declined, with the largest decline in India, where investments levels have now normalized. Networks adjusted gross margin was 51% benefiting from product and market miss as well as the cost reduction actions in the past years coming through. Networks adjusted EBITDA was $7.5 billion and the EBITDA margin increased significantly year-on-year to 21%. The beta improvement was driven by improved gross income, partly offset by increased R&D expense. In segment cloud software and services, sales were stable, with growth in core networks and software sales offset by lower sales in managed services.

Lars: Which reflected in part.

Lars: Some tariff uncertainty.

Lars: Other market areas declined with the largest decline in India, where investment levels are now normalized.

Lars: Networks adjusted gross margin was 51% benefiting from product and market Miss S way it lifts the cost reduction actions in the past years coming through.

Lars: Networks adjusted EBITDA was 74 5 billion and they beat their mod and increased significantly year on year to 21%.

Lars: They beat the improvement was driven by improved gross income, partly offset by increased R&D expenses.

Lars: Segment cloud software and services sales were stable with growth in core networks and software sales offset by lower sales in managed services.

Lars Sandström: Organic sales decreased 3%. SalesGov in market area Southeast Asia, Australia and India was offset by declining sales elsewhere. Adjusted gross margin increased year-on-year to 39.9%, benefiting from a higher software share, commercial discipline, and delivery performance. Improvement in gross margin and lower operating expenses resulted in a positive Q1 EBIT. In enterprise, sales decreased 1% and organic sales were down 7%. Here, global communications platform declined by 9%, impacted by the decision to focus on more profitable market segments and to reduce activities in some countries.

Lars: Organic sales decreased 3%.

Lars: Say, it's golf in market area of Southeast Asia, or seeing in India was offset by declining sales elsewhere.

Yeah.

Lars: Adjusted gross margin increased year on year to 49.9% benefiting from a higher software share commercial discipline and delivery performance.

Lars: Improvement in gross margin and lower operating expenses resulted in a positive Q1 a beta.

Lars: In enterprise sales decreased 1% and organic sales were down 7% here.

Lars: Here Global Communications platform declined by 9% impacted by the decision to focus on more profitable market segments and to reduce activities. There are some countries.

Lars Sandström: And here we expect stabilization during 2025. Enterprise wireless solutions grew by 20 percent, driven by higher subscriber and product sales in the enterprise network. Gross income increased by 0.5 billion and was up year on year across all the business in the segment. Global Communications Platform increased despite the sales decline.

Lars: And here, we expect stabilization during 'twenty to 'twenty five.

Lars: Enterprise wireless solutions grew by 20% driven by higher subscription subscriber and product sales in the enterprise networking.

Lars: Gross income increased by <unk> 5 billion and was up year on year across all the business in the segment.

Lars: Global Communications platform increased despite the sales decline.

Lars Sandström: Just that the beta was minus 0.5 billion.

Lars: Adjusted a bit there was a minus here up on $5 billion.

Lars Sandström: Then turn into free cash flow, which was 2.7 billion before M&A in the quarter. The stepdown from Q4 reflected the unusual Seasonality of lower Q1 share of profit and annual cash bonus payments, as well as the unusually high level of early payments in Q4. The cash flow was the result of the improved result and was partly offset by somewhat increased operating working capital, as well as the seasonal payments of incentives and the inflow from IPR payments received from our licensees. Net cash remained at similar levels to last quarter impacted by the revaluation exchange or exchange rate.

Lars: Then turning to free cash flow, which was $2 7 billion before M&A in the quarter.

Lars: The step down from Q4 reflected the unusual.

Lars: Seasonality of lower Q1 share of profit and annual cash bonus payments as well as the unusually high level of early payments in Q4.

Lars: The cash flow was the result of the improved results.

Lars: And was partly offset by somewhat increased operating working capital as well as the seasonal payments of incentives and the inflow from IPR payments received from our licensees.

Lars: Net cash remained at similar levels to last quarter impacted by the reevaluation exchange or exchange rates.

Lars Sandström: Next, I will cover the outlook. The global turmoil we have seen in Q1, and that has continued in recent weeks. is already having significant impacts, including currency rates and global trade flows. This can, of course, affect customer behaviors and investment decisions over time, but so far we have seen limited impact.

Lars: Next I will cover the outlook.

Lars: The global turmoil, we have seen in Q1 and that has continued in recent weeks is already having significant impacts including currency rates and global trade flows.

This kind of course affect customer behaviors and the investment decisions over time, but so far we see have seen limited impacts.

Lars Sandström: So there is increased uncertainty of our forecasts in a number of different areas and the future is quite difficult to predict.

Lars: So there is increased uncertainty of our forecast in a number of different areas and the future is quite difficult to predict.

Lars Sandström: with that in mind, turning first to sales. We expect both networks and cloud software and services to be broadly similar to average three-year seasonality in Q2. This includes the partial resolution of the Lenovo patent litigation and assumes current exchange rates. The current volatility of currencies makes predictions more difficult. As an example, if the rates at the end of March had been used for Q1, reported net sales would have been approximately 4% lower.

Lars: With that in mind, turning first to sales we.

Lars: We expect both networks and close off.

Lars: And services to be broadly similar to average three year seasonality in Q2.

Lars: This includes the partial resolution of the Lenovo patent litigation.

Lars: <unk> assumes current exchange rates.

Lars: The current volatility of currencies makes predictions more difficult as an example, if the rates at the end of March had been used for Q1 reported net sales would have been approximately 4% lower.

Lars: Next.

Lars Sandström: Networks Gross Margin. Here prediction is also more difficult. Tariffs could, of course, change at any time, and the broader macroeconomic environment and investment climate remains very uncertain. So, difficult to judge, but from what we see today, we expect network growth margin to be in the range of 48 to 50% for Q2. This includes the positive benefit from retroactive IPR, as well as a negative one percentage point estimated impact on margins from tariff. We still benefit from some earlier tariff mitigation actions in Q2, and if current tariff proposals stay the same, the Q2 impact could be a little bit higher.

Lars: Networks' gross margin.

Here prediction is also more difficult tariffs could of course change at any time and the broader macroeconomic environment and investment climate remains very uncertain.

Lars: So difficult to judge but from what we see today, we expect network gross margin to be in the range of 48% to 50% for Q2.

Lars: This includes the positive benefit from a retroactive IPR as wireless or negative one percentage point estimate that impacts on margins from tariffs.

Lars: We still benefit from some earlier terrorists mitigation actions in Q2, and if current tariff proposed to stay the same the Q2 impact could be.

Lars: A little bit higher.

Borja Ekholm: With that, I hand back to you, Bea.

Josh: With that I hand back to you there thanks Josh.

Borja Ekholm: Thanks, Lars. So looking ahead, we remain confident of our strong competitive position in mobile networks and expect the enterprise to stabilize during the remainder of 2025. There is a growing customer interest in our programmable networks, and many service providers need to invest in their networks to keep them competitive at current data traffic levels. North America, as I said before, is often a frontrunner market, so the recovery in investments gives cause for optimism for our market. This is, of course, encouraging, but ultimately, the exact timing of investments is in the hands of our customers. Of course, the external environment is also adding uncertainty, but we're prepared with the actions we've taken over the past few years.

Josh: So looking ahead, we remain confident of our strong competitive position in mobile networks and expect enterprise to stabilize during the remainder of 'twenty to 'twenty five.

Josh: There is a growing customer interest in our programmable networks and many service providers need to invest in their networks to keep the compare to keep them competitive at current data traffic levels.

Josh: With America as I said before is often a frontrunner in their market. So the recovery investments give us cause for optimism for our markets. This is of course encouraging but ultimately the exact timing of investments is in the hands of our customers.

Josh: Of course, the external environment is also adding uncertainty, but we're prepared with the actions we've taken over the past few years.

Borja Ekholm: We continue to be laser focused on controlling what we can control and respond with actions that position Ericsson to succeed across varying market conditions. This includes pricing, reflecting our leadership position, working on our cost base, as you have seen, we've done over the past year and a half, and how we manage working capital, which we also have done quite successfully over the past few years. while at the same time maintain focus on the long-term strategy execution. and this way we ensure Ericsson can manage short-term market swings, but also that we're well positioned for the long term.

Josh: We continue to be laser focused on controlling what we can control and respond with actions that position, Eric sone to succeed across varying market conditions.

Josh: This includes pricing, reflecting our leadership position working on our cost base as you have seen we've done over the past year and a half and how we manage working capital, which we also have done quite successfully over the past few years while.

Josh: While at the same time maintain focus on the long term strategy execution.

Josh: And this way we ensure ericsson can manage short term market swings, but also that we're well positioned for the long term.

Borja Ekholm: So in closing, our strategy is working. Our momentum is gaining traction. High performing programmable networks that enable differentiated connectivity are the future. This will allow our customers to increase monetization of network investments and actually create new growth areas for us.

Josh: So in closing our strategy is working our momentum is gaining traction high performing programmable networks that enable differentiate the connectivity or the future.

Josh: This will allow our customers to increase monetization of network investments and actually create new growth areas for us.

Borja Ekholm: So before going into Q&A, I would like to thank all my colleagues for their really hard work in making these results possible. It's truly an outstanding team we have here at Ericsson.

Daniel: So before going into Q&A I would like to thank all my colleagues for their really hard work, you're making these results possible. It's truly an outstanding team we have here with Eric So with that let's open up for Q&A Daniel.

Daniel Djurberg: With that, let's open up for Q&A, Daniel. Thanks, Maria. So we'll now move to the Q&A part of the call.

Speaker Change: Thanks, Barry So I will now move to the Q&A part of the coal as a reminder to ask a question you will need to press star one and one on your telephone and wait for your name to be announced.

Daniel Djurberg: 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. And if you're streaming the webcast, please could you mute the webcast audio while asking a question so we can avoid any feedback. And as usual, if I can request one question per participant, please, so we have time to hear from as many of you as possible.

Speaker Change: And if you're streaming the webcast. Please could you meet the webcast audio while asking a question. So we can avoid any feedback.

Speaker Change: And as usual if I can request one question per participant place. So we have time to hear from as many of you as possible.

Unknown Executive: Okay, operator, we're ready to take the first question, please.

Speaker Change: Okay, operator, we're ready to take the first question. Please.

Speaker Change: Sure.

Okay.

Francois Bovinier: So the first question this morning will come from Francois Bovinier at UBS. Francois, your line is now open, please go ahead. Thank you very much.

Speaker Change: So the first question. This morning will come from Francois Baldini at UBS Francois. Your line is now open. Please go ahead.

Francois Baldini: Thank you very much. So my question would be on the topical a a topic of Paris.

Francois Bovinier: So my question will be on the topical topic of tariff. So you mentioned this uncertainty and this one percentage point impact on tariff. Could you elaborate, you know, how the tariff are impacting, you know, your business is 100 basis points, you know, a bit more details as to the building blocks of this impact. And importantly, with the tariff in mind, do you see any inventory build happening as we speak ahead of this tariff? IE, could we expect more negative impact in the second half of the year? That's what we have a question. Thank you very much.

Speaker Change: So you mentioned this uncertainty and this was a one percentage point impact on tariffs could you elaborate you know how the tariffs are impacting your business is 100 basis points, you know a bit more details as to the building blocks of this impact and importantly, with a tariff in Ma.

Francois Baldini: Linda.

Francois Baldini: Do you see any inventory build happening as we speak ahead of these tariffs.

Francois Baldini: I E could we expect a more negative impact in the second half of the year.

Francois Baldini: That's what are your other question. Thank you very much.

Lars Sandström: If you look at the building blocks, I think it's very much connected to the material flow that we have, both direct components, but also site material, etc. that we have in the complete delivery to our customers. And as you know, we have production today, well diversified in different parts of the world, with production in North America, South America, Europe, Asia, etc. So that is the resilience we have built up over the time here. So that is why some parts of this impact is coming on these flows that we see based on the current decisions then that we had last Friday.

Francois Baldini: So if you look at the building blocks I think it's very much connected to the the material flow that we have.

Francois Baldini: Both direct components, but also site material et cetera that you have in the complete delivery to our customers.

Francois Baldini: As you know we have a production today.

Francois Baldini: Yeah.

Francois Baldini: Well diversified in different parts of wheat production in North America, South America, Europe Asia etcetera. So.

Francois Baldini: At this hour the resilience we have built up over the time here. So that is why some parts of this impact is coming on these flows are.

Francois Baldini: That we see.

Francois Baldini: Based on the current decisions then that we had last Friday.

Lars Sandström: I think when it comes to...

And I think when it comes to.

Lars Sandström: Your question there on inventory build-up, we had some inventory build-up already here in Q1 in our own sites to make sure that we have material in place and could handle a bit of the situation, but going forward, we don't see big impacts from that. Also from a customer perspective, we don't expect too big impacts from this part. I would only say one thing that's part of Lars' answer is the ecosystem of component suppliers. That's where we actually invested quite a lot over the years to broaden that, but that's probably where we need to be a bit more active also to build the Western ecosystem in those components.

Francois Baldini: Yeah. Your question narrow inventory buildup, we had some inventory buildup.

Francois Baldini: <unk> already here in Q1 in our own sites too.

Francois Baldini: To make sure that we have material in place and could handle a bit on the situation, but going forward, we don't see big impacts from that also from a customer perspective.

Francois Baldini: Don't expect too big impacts from this part.

Francois Baldini: Thank you.

Francois Baldini: I would only say one thing that that's part of Loris answer is there the ecosystem of component suppliers right. That's that's why we are actually investing quite a lot over the years to broaden that but that's probably where we need to be a bit more active also to build a recorded the western ecosystem in that.

Francois Baldini: In those components.

Francois Baldini: Thank you.

Francois Bovinier: Super. Thanks, Francois.

Francois Baldini: Super Thanks Francois.

Unknown Executive: So we're now ready to move on to the next question, please.

Speaker Change: So we're not ready to move onto the next question. Please.

Andreas Joelsson: The next question is going to come from the line of Andreas Joelsson at Carnegie. Andreas, your line should now be open. Thank you and good morning and maybe a little bit broader question. You mentioned that there is a need for investing in both programmable networks and in the sort of capacity. But when you discuss this with customers, how do they balance that with all the uncertainty that we have? all around the world. And that's not only, not just looking for base stations, but also for 5G standalone, for instance, and the APIs. How do you see that?

Speaker Change: The next question is going to come from the line of Andreas Yeltsin at Carnegie Andreas Your line should now be opened.

Andreas Yeltsin: Thank you and good morning, and there may be a little bit broader question. You mentioned that there is a need for investing in both programmable networks and in India.

Andreas Yeltsin: So that's a capacity, but when you discuss this with customers how do they balance that with all the uncertainty that we have.

Andreas Yeltsin: All around the world and that's not only.

Andreas Yeltsin: Just looking for base stations, but also for our five just stand alone for instance, and the D. E. P is how do you see that.

Andreas Joelsson: you know, progressing throughout the year, not just for the next quarter.

Andreas Yeltsin: You know progressing throughout the year not just for the next quarter and thank you.

Borja Ekholm: That's a good question, Andreas. You know, the uncertainty, I think this is more of a general question where... You know, investment climates tend to benefit from certainty, and we're almost in the opposite end of that spectrum. So you have kind of concerns around that. What I would say, though, is historically, when you when you look at uncertain periods, the data traffic actually continues to grow. So, so I think the the need for the service providers to make sure that they have cost-effective high performance networks are going to continue to increase. I have no doubt about that, because that's what we've seen in these periods before.

Speaker Change: That's a good question Andre as you know the uncertainty I think this is more of a general question why.

Speaker Change: So no investment climates tend to benefit from certainty and we're almost in the opposite end of that spectrum. So you have a kind of concerns around that what I would say, though is historically when you. When you look at onshore temp areas. The data traffic actually continues to grow.

Speaker Change: So so I think the.

Speaker Change: The need for the service providers too.

Speaker Change: Make sure that they have cost effective high performance networks are going to continue to increase.

Speaker Change: I have no doubt about that because that that's what we've seen in these periods before.

Borja Ekholm: What we're seeing is actually great progress on the network APIs. Of course, it's driven by the early markets, like we said, the launch of fraud APIs that we're doing jointly with three operators in the US is actually critical in shaping this ecosystem. So I do believe where here it's so early in the development that actually the general uncertainty doesn't impact so much, call it that, because we shouldn't really say it's driven by the general economy. So I think there it concerns me less.

Speaker Change: What we're seeing is actually great progress on the network. A P is of course it is driven by the early markets like we said the the launch of fraud Api's that were doing jointly with three operators in the U S is actually critical in shaping this ecosystem.

Speaker Change: So I I do I do believe we're here. It is so early in the development that actually the general uncertainty doesn't impact so much call. It out because that we shouldn't really say, it's driven by the general economy. So I think there are it concerns me less.

Borja Ekholm: Where we see on standalone, that's the major shift the industry have to do. You know, I think we're only at one in four networks or so, maybe one in three, maybe it's one in five, but it's that range. converted into 5G standalone. And ultimately, to get the capabilities of 5G, we need to convert solid mid-band build-out combined with going to 5G standalone. And if you look, for example, in Europe, we're only at less than half of sites prepared for mid-band and very few operators having launched really standalone services. We're starting to see some big operators having launched standalone, for example, T-Mobile in the U.S.

Speaker Change: Where we see all standalone, that's the major shifts the industry have to do you know I think we're only at one named for networks or so maybe one in three maybe it's one five but its debt in that range.

Speaker Change: Converted into five G standalone and ultimately to get the capability. So five G. We need to convert solid mid band build out combined with.

Speaker Change: Going to five days Standalone and if you look for example in Europe, we're only at less than half of sites are prepared for mid band and very few operators, having launched really a standalone services.

Speaker Change: We're starting to see some big operators, having the one standalone.

Speaker Change: For example, T mobile in the U S have a but we see.

Borja Ekholm: have. But we see, you know, other operators as well, Jio, Singtel, et cetera. So I do think that that is the next step because your ability as an operator to offer new services increases with the standalone. But I would also say the performance of the network increases again. So benefiting your customer experience at the end of the day. So I think we're, you know, we can speculate. I can't tell you that this is the way it's going to pan out. But I think there are a bit puts or gives and takes in this. So I'm rather comfortable that that the world is going to migrate towards more build out, more capacity and more SA as we move along in the year.

Speaker Change: All other operators as well G O seeing tail et cetera. So I do think that that is a next step because E D.

Speaker Change: Your your ability at Hudson operates at all for new services increases with the the Standalone, but I would also say the performance of the network increases again, so benefiting your customer experience at the end of the day. So I I think where you know because speculate I can't I can't tell.

Speaker Change: You that this is the way, it's going to pan out, but I think there are a bit put some gives and takes in this so I'm.

Speaker Change: Brad the cold and flu buildup that the world is going to migrate towards more build out more capacity and more S. A AR as we move along in the year.

Borja Ekholm: Perfect. Thank you. Thanks for the question, Andreas.

Speaker Change: Perfect. Thank you.

Unknown Executive: We'll move to the next question, please.

Speaker Change: Thanks for the question Andreas will move to the next question. Please.

Andrew Gardiner: Next question is coming from the line of Andrew Gardiner at City. Andrew, please go ahead. Do you hear us, Andrew? Hello, Andrew. We're cutting out. Okay, Andrew, if we don't hear you, I think we'll move to the next, but we'll try and bring you back a bit later. Can you hear me now, Daniel? We do now hear you, yes. I had another one on the tariff side of things, if I could. And in particular, the reference you make to the slight pull forward in demand for 1Q. I'm just wondering about, or if you can help me with some of the moving pieces as we look to second quarter.

Speaker Change: Next question is coming from the line of Andrew Gardiner at Citi. Andrew. Please go ahead.

Speaker Change: Do you hear as Andrea.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: Hello, Andre or cutting out.

Speaker Change: Okay, Andrew if we didn't hear you I think we will move to the next but we'll try and bring you back a bit like Daniel J E S.

Speaker Change: Got it thanks for that.

Speaker Change: I had another one on the tariff side of things if I could.

Speaker Change: In particular, the reference you made to the slight pull forward in demand for <unk>.

Speaker Change: I'm just wondering about or if you can help me with some of the moving pieces as we look to second quarter.

Andrew Gardiner: You've had pull forward to an extent in North America in the first quarter. Lars, you also highlighted the FX headwind that would be present in the second quarter. On my math, based on your rule of thumb, that's already 4-ish percent headwind quarter on quarter. Yet, despite those headwinds of pull forward in FX, you're guiding to normal seasonality. So that's implying much stronger organic growth quarter on quarter than we would normally see. Where is that coming from, from a regional perspective? Is it still strength in North America? Are you starting to see things bottoming elsewhere and you're expecting other regions to grow above seasonally?

Speaker Change: You had pulled forward to an extent in North America in the first quarter.

Speaker Change: Lars you also highlighted the FX headwind that would be present in the second quarter.

Speaker Change: On my math based on your rule of thumb that's already.

Speaker Change: Rich percent headwind quarter on quarter, yet despite those headwinds of the pull forward in FX youre guiding to.

Speaker Change: Normal seasonality, so that's implying much stronger.

Speaker Change: Panic growth quarter on quarter than we would normally see.

Speaker Change: Where is that coming from from a regional perspective, it's still strength in North America, and you're starting to see things bottoming.

Speaker Change: Elsewhere in you're expecting other regions to grow above seasonally just some of those moving parts would be very helpful. Thank you.

Andrew Gardiner: Just some of those moving parts would be very helpful. Thank you.

Lars Sandström: I think when it comes to pull-ins, I think it's more, the correct term is rather the product mix impact it had. So it's not so much a question about pull-in, it's more a question that the product mix was a bit different, where we had a bit more of, call it high, more high margin product mix supporting in Q1. So that's on that question. And when it comes to, as you said, on the Q2, yes, on the FX side there, and that implies a slight growth. And we also have a bit of IPR, of course, in the retroactive part.

Speaker Change: I think.

Speaker Change: I think when it comes to pool, and so I think it's more that the correct. Tom has ordered the product mix impact. It had so it's not so much a question about poorly in for <unk>. It's more of a question that the product mix also be different where we had to be its more of a.

Speaker Change: Call it higher more higher margin.

Speaker Change: The product mix supporting in Q1, so that's on that question.

Speaker Change: And when it comes to as you said on the Q2, yes on the FX side there.

Speaker Change: And that implies a slight growth.

Speaker Change: And we also have a bit of IPR of course, our indirect or active part.

Lars Sandström: And when it comes to the markets there, we have still, as you might remember, during last year, we saw the impact from ramping up in North America, really starting to come into the numbers in Q2 and then were more fully into the numbers for the second half of last year. So that is still an impact that we can see in coming into Q2 and also India coming down to more normalized levels in Q2. So that is a little bit, the details I can give to you on that. And it's based on what we see today coming into Q2 with the product and market mix.

Speaker Change: When it comes to the markets there.

Speaker Change: We have still we as you might remember during last year, we saw the impact from ramping up India and North America is really starting to come into the numbers in Q2, and then we're more fully into the numbers for the second half of last year. So that is still an impact that we can see.

Speaker Change: In coming into Q2, and also India coming down to more normalized levels in the in Q2, so that is a little bit.

Speaker Change: The details I can give it to you on that and it's based on what we see today coming.

Speaker Change: Coming into Q2 with a product and market mix that is the what our estimate is based on.

Lars Sandström: That is what our estimate is based on.

Lars Sandström: Okay, and if just a quick follow up, I mean, how should we then think of that into the second half of the year? I mean, you flag now a stable market as opposed to, you know, prior expectations of growth based on the industry analyst forecast. And with a above seasonal organic trends in the first part of the year, does that not leave you at risk in the second half? What's your visibility into the customer demand at that point? When it comes to outlook, as you know, we guide on the next quarter, and when it comes to full year, we don't guide on that.

Speaker Change: Okay, and just a quick follow up.

Speaker Change: How should we then think of that into the second half of the year.

I mean, you flagged now a stable market as opposed to prior expectations of growth based on the industry analysts forecast.

Speaker Change: And with above seasonal organic trends.

In the first part of the year does that not leave you at risk in the second half and what's your visibility into the customer demand at that 0.0, well when it comes to outlook S. S. You know we guide on the next quarter and when it comes to full year.

Lars Sandström: What I can say is that if you look at the full year, and the flat round market, we maintain that view that we had also coming out of Q4. So that is a slight growth if you exclude China, then in the round market, and coming down from the high growth rates that we had during the second half last year coming down to more, call it normalized levels. And then there is potential for growth, we see investment needs in markets like India, and other parts of Asia. But then at the end of the day, it's the customer who decide when to invest, of course, but that could be some of the moving parts for the second half.

Speaker Change: We don't guide on that what I can say is that if you look at the full year, we enter the fluff.

Speaker Change: Ron market.

Speaker Change: We maintain that view that we had also coming out of Q4. So that is a slight growth if you exclude China and in the ran market and coming down from the high growth rates that we had during the second half last year coming to Ulta or call. It normalized levels and then there is potential for growth.

Speaker Change: We see investment needs in markets like India, and other parts of Asia, but then at the end of the day, it's the customer who decide when to invest of course, but that could be some of the moving parts with the second half.

Andrew Gardiner: Thanks for the question, Andrew.

Speaker Change: Yeah.

Unknown Executive: We will move on to the next question, please.

Speaker Change: Thanks for the question Andrew.

Speaker Change: We will move onto the next question. Please.

Joachim Gunell: Next question is coming from the line of Joachim Gunell at DNB. Please go ahead, Joachim. Thank you very much, Daniel. So, very impressive gross margins here, any way we look at it. And on the strength in North America, coming just back to what we just discussed, but can you help us dissect how much of the Q1 strength is a factor of pre-buy effects with, say, strong hardware sales? And there could be actually some potentially delayed services rollout here, since the services percentage of networks revenue actually declined quarter of a quarter.

Speaker Change: Next question is coming from the line of Yeah. I can go now at Dnb. Please go ahead your okay.

Speaker Change: Thanks, very much Danielle so very impressive gross margins here anyway, we look at it.

Speaker Change: On the strength in North America, the company just back to what we just discussed.

Speaker Change: Can you help us dissect how much of the Q1 strength.

Speaker Change: Is a factor of a pre buy FX with the strong hardware sales and there could be actually some potentially delaying services rollout here since the service as a percentage of metrics revenue actually declined quarter over quarter. So will we see that changing the product mix for instance, AT&T, where you will become more service.

Lars Sandström: So, will we see a change in the product mix at, for instance, AT&T, where you will become more service heavy in H2 2025, and that could actually be a drag on gross margins? We don't comment on specific customers, as you know, but as we have talked about before, is that we will see a gradual shift when it comes to the product mix for the second half with the role of programs that we see today in the margin. But I think it's also worth mentioning that in Q1, yes, North America is a high proportion of the total sales that helps the margin.

Speaker Change: Have your image to 2025 and that could actually be a drag on gross margins.

Speaker Change: We don't comment on specific customers as you know, but as we have talked about before is that we will see a gradual shift.

Speaker Change: When it comes to the product mix for the second half with the role of programs that we see today in the in the margin, but I think it's also worth mentioning that in Q1, Yes, North America is so high.

Speaker Change: A portion of the total sales that helps the margin, but what is really driving the underlying margin improvement.

Borja Ekholm: But what is really driving the underlying margin improvement is it is broad-based. We see margin improvements in all market areas and all segments here in the quarter. So that is supporting and that is coming from the cost activities and productivity activities we have done for quite some years now and supporting the margin. So that is kind of the building blocks. I don't know if you want to add more. No, I think that you said it's the broad-based recovery or improvement that is actually what matters. And I would say the You know, when you when you look at the globe over the past few years, we've actually taken a lot of effort to try to make us less sensitive to call it the geographic mix.

Speaker Change: It is broad based we see margin improvements in all market areas and all segments here in the quarter. So that is supporting and that is coming from the cost activities and productivity activities. We have done for quite some years snow and supporting the margin. So that is kind of the building blocks I don't know if you want to add more.

Speaker Change: No I think you said it it's the broad based recovery or improvement that that is actually what matters and I would say the.

Speaker Change: You know when you when you look at the globe over the past few years, we've actually taken a lot of effort to try to.

Speaker Change: And make us less sensitive to call it the geographic mix so from a margin perspective.

Borja Ekholm: So from a margin perspective. It's much more important that we have been able to deliver the improvement in the underlying business than anything. So, you know, then we flag a bit about the, call it pre-buying, but more in the product mix. But I would say the key driver is all the work my colleagues have put into improving the operations. And that's really what matters.

Speaker Change: It's much more important that we have been able to deliver the improvement in the underlying business than than anything.

Speaker Change: So then then we we flag a bit about the call it pre buying but more in the product mix, but I I would say the key driver is all the work there.

Speaker Change: Colleagues have put into improving the operations and that's really what matters.

Speaker Change: It sounds encouraging thank you. Thanks.

Unknown Executive: Thanks for the question Joachim, moving to the next question please.

Speaker Change: Thanks for the question Yeah, Okay moving to the next question. Please.

Speaker Change: Okay.

Sandeep Deshpande: Next question is coming from Sandeep Deshpande at J.P. Morgan.

Speaker Change: Next question is coming from Sandeep Deshpande here at J P. Morgan Sunday. Please go ahead.

Sandeep Deshpande: Sandeep, please go ahead. Yeah, hi, thanks for letting me on. I have a question on margin. The two short questions I have on margin are firstly, you know, you're seeing this very strong margin, how much of that margin that you see, the gross margin that you're seeing is coming from the mix, and how much, particularly in terms of the guided margin into the next quarter, where you're guiding, I think, 49% of the midpoint gross margin in the networks business is coming from this new deal that you've signed, and how much of that is one off because there will be, you know, back payments on that.

Speaker Change: Yeah, Hi, Thanks for letting me on I have a question on margin.

Speaker Change: The two sub questions I haven't margin firstly.

Speaker Change: But it's all margin how much of that margin.

Speaker Change: The gross margin that you're seeing is coming.

Speaker Change: Coming from the mix and how much.

Speaker Change: In terms of the guided margin into the next quarter, you're guiding I think 49% at the midpoint.

Speaker Change: The network business.

Speaker Change: Coming from that new deal that you signed and how much of that is one off because there will be a you know.

Speaker Change: Back payment on that deal. Thank you.

Lars Sandström: When it comes, we don't split up the different margin impacts, but the three areas that we highlight is product mix, underlying improvements and to some extent the market mix. So those are the three components that we try to bring forward. And when it comes to Q2, we don't disclose how much is retroactive payments, etc. But of course, it has an impact and that's part of the outlook that we give. And on the other end, you have somewhat negative impact on the IPRs also coming in with around a percentage point. So those are the building blocks.

Speaker Change: Oh it when it comes we don't split up the different modeling impacts, but the free area that we highlight is product mix.

Speaker Change: Underlying improvements and to some extent the market mix. So those are the three components that we tried to bring forward and when it comes to Q2, we don't.

Speaker Change: Disclose how much is a retroactive payments et cetera, but of course it tests.

And the impact and that's part of the outlook.

Speaker Change: Outlook that we give oh god around do you have.

Speaker Change: Somewhat a negative impact on the IPR is also coming in with around a percentage point. So that those are the building blocks and then are you somewhat overnight.

Lars Sandström: And then there is somewhat of an underlying organic growth then in the quarter as well. So that is the building blocks that we see going into Q2.

Speaker Change: Underlying organic growth in the quarter as well so that is the building blocks that we see going into Q2 and on.

Lars Sandström: What was the negative IPR you talked about? No. To clarify the negative. Negative is the tariff part. Oh, tariff, okay. Sorry. So it's worthwhile also to remember that the IPR is actually a partial agreement as well. Yes. it's not a it's not a full agreement it's a partial agreement that will come thank you Thanks Sandeep.

Speaker Change: I think you're right.

Speaker Change: You talked about what are the negatives.

Speaker Change: No the clarify the.

Speaker Change: Negative if the tariff part static okay sorry.

Speaker Change: So on the this worthwhile also to remember that the IPR is it's actually a partial agreement as well yes.

Speaker Change: It's not the it's not the whole agreement partial agreement that will come.

Speaker Change: Thank you.

Speaker Change: Thanks, Sandeep moving to the next question please.

Speaker Change: Okay.

Sbastien Sztabowicz: Next question is going to come from the line of Sbastien Sztabowicz at Kepler Chevreux. Your line is now open, Sbastien. Yeah, hello, everyone. Thanks for taking my question. On the cost cutting actions, where are you standing right now? Where are you putting, I would say, the focus of those days? And how should we model the OPEX for the full year?

Speaker Change: Next question is going to come from the line of Sebastien stop events at Kepler Chevron. Your line is now open sebastien.

Yeah, Hello, everyone. Thanks for taking my question.

Speaker Change: On the cost cutting actions, where are you standing right now where are you pretty I would say is accused these days and how should we.

Speaker Change: Opex for the full year.

Lars Sandström: Are you still targeting a broadly flattish OPEX for 2025? When it comes to OPEX, if you look at what we are doing, we have continuously made decisions and will continue to make decisions. We live in a flat, raw market, and together with an inflationary market, that of course will require cost reductions to offset this part. So that is what we are working against. How it will exactly pan out is, of course, I cannot give you that full guidance, but that is what we are working towards.

Speaker Change: Sheila targeting broadly flattish opex for.

Speaker Change: 2025.

Speaker Change: Oh when it comes to Opex are if you look at our what we are doing we have continuously made decisions and we'll continue to make decisions. We live in a flat raw market and together with an inflationary markets.

Speaker Change: Markets that of course will require cost reductions to offset these parts of that is what we are working against how it will exactly pan out is of course.

Speaker Change: I cannot give you that full guidance, but that is what we are working towards and that can be some investments within R&D specific areas within networks that we have.

Lars Sandström: Then there can be some investments within R&D specific areas within networks that we address. But on the other hand, we have made decisions in cloud software and services with reductions. So those are kind of the big moving parts that we have.

Speaker Change: The address but on the other hand, we're.

Speaker Change: And we have made decisions in cloud software and services with reductions so that those are kind of the big moving parts that we have.

Speaker Change: Yeah.

Speaker Change: Okay. Thank you.

Unknown Executive: Thanks Sebastian.

Speaker Change: Yeah.

Frederick Lithau: Moving on to the next question please. Next question is coming from Frederick Lithau at Hannoldsbanken. Frederick, please go ahead. Thank you very much for taking my questions as well and congrats to strong results. Can I please come back to the margin guidance for the second quarter? If you printed 51% for networks in Q1 and you guide excluding the tariffs of 49 to 51% in Q2, which sort of is based on that you expect normal seasonal growth of around 8%. So I mean, if we take out the Lenovo part, are you expecting the margins to come down for this sort of the product side, excluding the IPRs or how should we view that?

Speaker Change: Thanks, So bastian moving onto the next question. Please.

Speaker Change: Next question is coming from Fredrik <unk> at Handelsbanken Fredrik. Please go ahead.

Fredrik: Thank you very much for taking my question since we're all and congrats to the strong results.

Speaker Change: Can I, please come back to the margin guidance for the second quarter.

Speaker Change: If you printed 51% from efforts in Q1, and your guide excluding the tariffs of 49% to 51% in Q2.

Speaker Change: So based on that you expect normal seasonal growth of around 8%. So.

Speaker Change: And I mean, if if we take out the Lenovo part are you are you expecting the margins to come down for this sort of the product side exclusive excluding the ipr's or how should we view that I'm a bit confused on this thank you.

Lars Sandström: I'm a little bit confused on this. Thank you. When it comes to the organic growth, I think, as I mentioned there, the currency impact in Q1, if we recalculated that to the rates coming out, it was around 4 percentage points. So I think that can be worth keeping in mind going forward as well. And when it comes to margin, we said 48 to 50 and then if you exclude the tariff impact, this is based on what we see in the product and market mix going into the quarter. So I think then, of course, there is a bit of support from the IPR in that as well.

Speaker Change: When it comes to no organic growth.

I think as I mentioned there.

Speaker Change: The currency impact in Q1, if we recalculate the death rates coming out it was around four percentage points. So I think that can be worth keeping in mind going forward as well.

Speaker Change: And when it comes to margin.

Speaker Change: We said 48 to 50 and then if you exclude the the tariff impact D season based on what we see in the product and market mix going into the quarter. So.

Speaker Change: I think and then of course, there is a bit of support from the IPR and death as well, but so those are the moving parts are that are there and I.

Lars Sandström: But so those are the moving parts that are there.

Lars Sandström: And I will not go in and give exact details on everything. But those are our market estimations that we see when it comes to the product deliveries and service deliveries for the quarter. Yeah, I think you said at some point that you're also in Q1, you saw maybe not so much pre buying in sort of before tariffs, but rather than that you had a positive product mix with sort of higher margin. products supporting the Q1 gross margin in networks. Is that correct that you had that type of effect in the gross margin in Q1? Yes, I think we can say that we had a somewhat favorable product mix, both on the hardware and software side here in Q1.

Speaker Change: It will not go in them and give exact details on everything but those are our market estimations that we see when it comes to the product delivery and service deliveries for the quarter.

Speaker Change: Yeah, I think you said at some point that Youre also in Q1, you saw maybe not so much a pre buying in sort of before tariffs, but rather than that you had a positive product mix with a sort of a higher margin.

Speaker Change: Products supporting the Q1 gross margin in networks.

Speaker Change: Is that correct that you had that type of effect in the gross margin in Q1, Yes, I think we can say that we had this summer with favorable product.

Speaker Change: Product mix, both on the hardware and software side here in Q1, but that's you know.

Lars Sandström: But as you know, we are also in the project business, so there can be big deliveries late in a quarter with quite an impact on the margin. So therefore, this is what we see now and that is what we are trying to communicate. And I think it's also fair to say that. You know, the product mix is driven by the traffic development in networks. So how much of it is driven by what is very hard to dissect? So we're only saying that we saw a bit of a shift of product mix in the end of the quarter as Lars said.

Speaker Change: We are also in the project business that it can be big deliveries late in a quarter with quite an impact on.

Speaker Change: On the margin. So therefore, we try to this is what we see now and that is what we are trying to communicate.

Speaker Change: I think it's also fair to say that.

Speaker Change: You know that the product mix is driven by the traffic development in network. So how much of it is driven by Walt is very hard to dissect.

Speaker Change: So we're always saying there that that we saw a bit of shift of product mix in the end of the quarter as law set.

Lars Sandström: How much of that is... I wouldn't label it necessarily pre-buying more as a matter of fact it needs shifting in the network. We'll see. But the best visibility is what Lars said. Yeah, perfect.

Speaker Change: How much of that is.

Speaker Change: Wouldn't label it necessarily pre buy more as a matter of fact it needs shifting in the network.

Speaker Change: We'll see but the best law says.

Unknown Executive: Very, very clear. Thank you.

Speaker Change: Okay perfect Medicare Thank you.

Richard Kramer: Next question, please. Next question is coming from the line of Richard Kramer at Areté. Richard, please go ahead. Thanks very much, guys. Just a question that hasn't been asked yet. Services within networks has now declined for eight straight quarters and four over the last five quarters in cloud software. Is this supply led or demand led?

Speaker Change: Thanks Fredrik next question please.

Speaker Change: Next question is coming from the line of Richard Kramer at Arete Research. Please go ahead.

Speaker Change: Thanks, very much guys.

Speaker Change: Just a question that hasn't been asked yet services within networks has now declined for eight straight quarters in and for for the last five quarters and cloud software.

Speaker Change: Is this supply led or demand led.

Borja Ekholm: My question is really is, are you making a deliberate change to try to push Ericsson towards structurally higher margin products business? Or is this a function of customers having less demand for services or you wanting to do less services for them? Thanks. It's a good question, Richard. I will say it actually varies a bit. So if you look at the network rollout has historically been a very difficult business for Ericsson. So we have tried to very proactively reduce that. So that's what you see coming through in the numbers. It's still an important part of the offering.

Speaker Change: My question is really is are you, making a deliberate change to try to push ericsson towards structurally higher margin products business or is this a function of customers having less demand for services were you wanting to do life services for them. Thanks.

Speaker Change: Yeah.

Speaker Change: It's a good question Richard.

Speaker Change: I would say, it's actually varies a bit so if you look at the.

Speaker Change: Network rollout does have historically been a very difficult business for Ericsson and so we have tried to very proactively reduce that.

Speaker Change: And so so that's our that's what you see coming through in the numbers, it's still an important part of the offering. So that's why it's not as is not going to go away.

Borja Ekholm: So that's why it's not going to go away.

Borja Ekholm: But I think it's important to get into higher margin business longer term. On the managed services, there, as you know, we have had, dating back to 2017, rescoping of contracts where we have tried to get out of not attractive contracts. So that that's an element of proactively pruning the portfolio. But you've also seen the last. I would say the last two, three years, a little bit more push on customers for insourcing. So we have had a couple of contracts being insourced. I will say what we see now in the customer discussions is actually a bit more positive.

Speaker Change: But I think it's important to get into a higher margin business longer term.

Speaker Change: On the on the managed services there as you know we have had.

Speaker Change: Dating back to 2017.

Speaker Change: <unk> scoping old contracts, where we have tried to get out of.

Speaker Change: Not attractive contract so that that's an elemental proactively pruning the portfolio.

Speaker Change: But you've also seen the last.

Speaker Change: I would say the last two three years, a little bit more push on customers for in sourcing.

So we have had their capital contracts being in sourced.

Speaker Change: I will say, our what we see now in the customer discussions, it's actually a bit more positive.

Borja Ekholm: You know, the complexity networks are increasing quite substantially when you roll out 5G. So we're starting to see now customers coming back and actually we see an increasing sales of managed service and we had one fairly big win this quarter. And I'm getting a bit more excited about the opportunity here driven by the demand for resilience, reliability in the networks and combined with the complexity. So I think the picture is a bit mixed here where part is a proactive decision but part of it is actually a market that's now starting to come back.

Speaker Change: You know the complexity networks are increasing quite substantially when you rollout five G. So we're starting to see now customers coming back and actually.

Speaker Change: Where we see an increasing sales of managed service and we had one fairly big win this quarter and I'm I'm I'm getting a bit more excited about the opportunity here are driven by the demand for resiliency reliability in the networks out there and combined with the complexity.

Speaker Change: So I think the picture is a bit mixed here, where we're part is it's a proactive decision, but part of it is actually a market. That's now starting to come back. So I'm I'm I think we may have recent to revisit your question if we're successful.

Borja Ekholm: So I think we may have reason to revisit your question if we're successful on the managed services in the next few years.

Speaker Change: On the managed services in the next few years sexually.

Speaker Change: Thanks very much.

Unknown Executive: Thanks for the question, Richard.

Speaker Change: Thanks for the question Richard next question. Please.

Sammy Sarkomedes: Next question is coming from the line of Sammy Sarkomedes at Danske Bank.

Speaker Change: Next question is coming from the line of semi soft committees at Danske Bank. Please go ahead Sami.

Borja Ekholm: Please go ahead, Sammy. Hi, thanks. I wanted to ask about market outlook on regional basis. If you look at Q1, sales to other regions than North America still did not grow, even though you continue to talk about pent up demand. Do you have visibility on improvement during 25 with potentially black figures before the year end in other regions than North America? I think, I mean, what what is the case is North America is growing. That's normally a very good indicator what happens in the rest. So keep that in mind. The other is Europe has started to grow during second part of last year.

Sami: Hi, Thanks, I wanted to ask about the market outlook on regional basis.

Speaker Change: If you look at Q1 sales to other regions in North America still did not grow even though you continue to talk about pent up demand do you have visibility on improvement during twenty-five with potentially black figures.

Sami: Before the year end in other regions in North America.

Speaker Change: [noise].

Speaker Change: I I I think.

Speaker Change: I mean, what what what is the case, there's North America is growing that's normally a very good indicator what happens in the rest so keep that in mind. The out there is Europe has started to grow during second part of last year.

Borja Ekholm: And now we're not breaking out Europe. So it's combined with with other parts of the world. But that indicates that there is a actually that's happening that they need to invest in the networks starting to come through. And then we have, which I would say Southeast Asia, Oceania and India, where India has normalized and we had a fairly strong Q1 last year. So when you make comparables, of course, that impacts year over year. So I think the overall, you know, as we have said, the external analyst talks about the flattish market for the year. That's, of course, recovery from the shrinking of the former years.

Speaker Change: Now, we're not breaking out Europe, so it's combined with with other.

Speaker Change: Parts of the world, but that indicates that there is say a actually that's happening that they need to invest in the networks.

Speaker Change: Starting to come through and then we have which I would say.

Speaker Change: Southeast Asia, Oceania, and India, where India has normalized and we had a fairly strong Q1 last year. So so when you make comparables.

Speaker Change: Or is that impacts our year over year, So I I I think the the overall.

Speaker Change: As soon as we have said the external analysts talks about a flattish market for the year. That's of course, a recovery from the shrinking of the former years.

Borja Ekholm: where we've seen a fairly big contraction over the last two to three years. To be honest, so I think where we're starting to see that, you know, stabilization and possible improvement going forward, again, typically led by front runner markets. So I'm. It's always, I mean, it's easy to have an opinion about the future. It's only hard to be right. So let's let's think about what we can do here. But but we're trying to give you the best visibility we have.

Speaker Change: Well, we have seen a fairly big contraction over the last two or three years.

Speaker Change: To be honest, so I I think where we're starting to see that you know stabilize.

Speaker Change: Stabilization on Unpossible.

Speaker Change: The improvement going forward again, typically led by phone or on their markets. So I'm.

It is it's always I mean, it's easy to have an opinion about the future, it's only hard to be right.

Speaker Change: So, let's let's think about what we can do here, but we're trying to give you the best visibility we have.

Unknown Executive: Okay, thanks. Thanks Sammy.

Speaker Change: Okay. Thanks.

Speaker Change: Thanks Hamid maybe into the next question please.

Ulrich Rather: Next question is coming from the line of Ulrich Rather at Bernstein. Ulrich, please go ahead. Thanks very much. I wanted to come back to the tariffs in particular, the two aspects of that. The first one is this one percentage point impact for the second quarter. I think during your prepared remarks, you said that was reflecting, you know, what the status of that was on Friday. Obviously, over the weekend, there were already additional news. I just wanted to make sure I fully understand what the one percentage point actually reflects in terms of, you know, the status of these tariffs.

Speaker Change: Next question is coming from the line of Ole Red graph at Bernstein Ulrik. Please go ahead.

Speaker Change: Yeah. Thanks, very much I wanted to come back to the tariffs in particular, the two aspects of that the first one is this one percentage point impact for the second quarter.

Speaker Change: I think during your prepared remarks, he said that was reflecting you know what the status of that was on Friday, obviously over the weekend there already additional news I just wanted to make sure I fully understand what.

Speaker Change: The one percentage point actually reflect in terms of you know that the state of South East tariffs does it essentially.

Ulrich Rather: Does it essentially... Reflect the, you know, only the removal of the excess tires or, or to that came out over the weekend.

Speaker Change: Reflect the.

Speaker Change: Only the removal of excess tariffs or wholesale.

Speaker Change: It's the best scar reinstatement.

Lars Sandström: And then the second thing is, If you could just give a bit more color, I mean, I'm not entirely sure where you would be willing to give more color, but obvious questions in this context are what percentage of the USA is actually less production in terms of the value debt. How much capacity do you see in the U.S. amongst third-party contract manufacturers that you can tap? Or have you already locked in significant capacities? And I mean, there's any number of questions here.

Speaker Change: I'm out over the weekend and then the second thing is.

Speaker Change: If you could just give a bit more color I mean, I'm not entirely sure why you would be willing to give more color, but the obvious question to those contracts or what percentage of the USA is actually less production in terms of the value of depth.

Speaker Change: Hum.

Speaker Change: How much capacity do you see in the U S.

Speaker Change: Amongst the third party contract manufacturers.

Speaker Change: Manufacturers.

Speaker Change: You can tap or have you already locked in significant capacities.

Lars Sandström: I don't want to list them all, but if you could just give a bit more color what that resilience that you're talking about actually comes from. Thank you so much. If I start, you can continue. Looking at the 1% that we gave, it's based on where we came out Friday and what we see there. That is our current view when we're coming out today as well. And then, as you know, there will be new information coming and how that will impact. We will have to follow, but we just wanted to make sure that at least to give our best estimate where we stand now, given the last changes that have been coming.

Speaker Change: There's any number of question if you don't want to Miss them, all but if you could just give a bit more color what that resilience that you're talking about actually comes from thank you. So much.

Speaker Change: If I start and you can continue.

Speaker Change: Looking at the 1% that we gave it's based on where we came out Friday and.

Speaker Change: What we see there we that is our current view when we come.

Speaker Change: Coming out today as well and then as you know there will be.

Speaker Change: New information coming and how that will impact we would have to to follow but we just wanted to make sure that at least to give our best estimate where we stand now given the the loss.

Speaker Change: Shane just that that's been coming.

Lars Sandström: That is what we're trying to say with this.

Speaker Change: That is what we're trying to say with this.

Lars Sandström: number and then when it comes to production we don't give we have a US production site where we can produce we don't give exact numbers on how much is coming from where and it is as I said we have production in in US, South America and Europe and part of Asia and we can shift volumes between sites but it's not a quick change of course but we don't do any big changes now because we don't know actually where we're going to land so we will see here in the coming months if we choose to ramp up or ramp down between different sites but it's very depending on where the tariffs actually land at the end of the day here.

Speaker Change: Number.

Speaker Change: And then when it comes to production, we don't give a we have a U S production sites, where we can produce and we don't give exact numbers on how much is coming from where.

Speaker Change: It is as I said, we have production in in U S South America.

Speaker Change: In Europe, and parts of Asia, and we can shift volumes between sites.

Speaker Change: But it's not the quick.

Speaker Change: Change of course, but we don't do any big changes now because we don't know actually where we're going to land. So we would see here in the coming months, if we choose to ramp up ramp down between different sites, but it's very depending on.

Speaker Change: Where the tariffs actually land at the end of the day here.

Lars Sandström: And I think it's also important to tie it back to actually the first question, you know, what is it that gives rise to the tariffs actually, components and really site material, right? So those are the flows that we need to work on and we need to create, I call it the Western ecosystem in this, and that's going to take some time, but that is what really gives rise to the tariffs. Thank you very much.

Speaker Change: And I think it's also important to tie it back to to actually the first question.

Speaker Change: Well what is it that gives rise to the terrorists sexually components and and really site material right.

Speaker Change: So so those are the flows that we need to work on now we need to create a.

Speaker Change: I call it the western ecosystem in this and that's going to take some time.

Speaker Change: But that is what really gives rise to the so the terrorists.

Speaker Change: Thank you very much. Thanks for the question Eric We have time for just one more question today. Please if we can make the next question out of the queue.

Unknown Executive: We have time for just one more question today, please. If we can move the next question up the queue. Thanks.

Felix Hendrickson: So the last question for today is coming from Felix Hendrickson from Nordea. Felix, please go ahead. Thanks for squeezing me in. Could you talk a bit about the competitive. outside of the U.S. and related to that.

Speaker Change: Thanks, and the last question for today is coming from Felix Hendrickson from Nordea Phoenix. Please go ahead.

Felix Hendrickson: Hi, guys. Thanks for squeezing me in could.

Felix Hendrickson: Could you talk a bit about the competitive trends that you're seeing outside of the U S and related to that.

Borja Ekholm: The negative organic growth figures that you delivered outside of the Americas are these and Matt Wieck. Competitive environment. Gus and Toph. So if you look outside, I think we already last year said that the competition from Chinese vendors have increased. So that's really not the change. It's been the same for several quarters now. So I would say that we have some footprint losses, and we have some footprint gains. That's coming in the numbers, so I I wouldn't say it's a change, but the market has been slower outside of North America. But really, when you focus on the wins or losses, it's...

Felix Hendrickson: The negative organic growth figures that you delivered outside of the Americas are these sort of.

Felix Hendrickson: Related to broader.

Felix Hendrickson: That weakness or has the competitive environment also gotten tougher. Thank you.

Felix Hendrickson: And so if you look outside I think we already last year said that the competition from from Chinese vendors have increased so that's really not to change our it's been the same.

Felix Hendrickson: For several quarters now.

Felix Hendrickson: So I would say that.

Felix Hendrickson: We have some footprint.

Felix Hendrickson: Footprint low Sis and we have some footprint gains are.

Felix Hendrickson: That's coming in the numbers Si.

Felix Hendrickson: I wouldn't say, it's a it's a change but it but the the markets has been slower outside of North America.

Felix Hendrickson: But really when you focus on the on the wins or losses.

Borja Ekholm: Now we'll have to see where market shares come, but I don't see, I see some footprint gains and some footprint losses. So I think they are more or less evening out. But let's see when the final numbers come from the market. Thanks for the question, Felix.

Felix Hendrickson: Now, we'll have to see where market shares come but I don't see them.

Felix Hendrickson: I see some footprint gains some footprint losses, so I think they are more or less.

Felix Hendrickson: Evening out.

Felix Hendrickson: But let's see when the final numbers come from from the market.

Felix Hendrickson: Thank you.

Felix Hendrickson: Thanks for the question Felix said.

Unknown Executive: So that concludes the call today. Thanks everyone for joining. Thank you.

Speaker Change: So that concludes the call today and thanks, everyone for joining.

Felix Hendrickson: Thank you.

Felix Hendrickson: Okay.

Felix Hendrickson: [music].

Felix Hendrickson: Okay.

Felix Hendrickson: [music].

Felix Hendrickson:

Felix Hendrickson: Okay.

Felix Hendrickson: [music].

Okay.

Felix Hendrickson: [music].