Q2 2025 Telefonaktiebolaget LM Ericsson Earnings Call
Hello everyone. And welcome to the presentation of Ericson's, second quarter 2025 results.
With me here in the studio today, Bora elcom our president and CEO and Los Angeles from our Chief Financial Officer.
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 in the investor relations website,
please be advised that today's call is being recorded and the 10 days presentation may include forward-looking statements,
These statements are based on a current expectation 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.
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 to burer and to last for the introductory comments.
Speaker Change: Thanks, Danielle and good morning everyone. And thanks for joining us today.
Speaker Change: Execution against both our operational, strategic priorities.
Speaker Change: Milestones, uh, included a Fifth Quarter in the row of positive, ebita in Cloud software and services.
Speaker Change: And we continue, uh, to have the solid execution in networks, with good gross margin.
Speaker Change: We return to sequential growth in Global Communication platform, following the market, exits, and iduna has now signed up, all 3 operators in Japan.
We achieved these results despite the fluid geopolitical and trade environment, and let me give you some key financial and strategic takeaways before large Dives further into the numbers.
Speaker Change: so as I said, organic sales grew by 2%, we growth in market area America and in IPR,
And despite the temporary investment pools in India.
We also saw increasing FX headwinds during the quarter all almost 5 billion coroner year over year.
Speaker Change: As I mentioned we we saw strong development in our margins. Gross margin came in at 48% and we delivered an ebita margin of 13.2%.
An importantly, the margin improvements was broad-based across all segments.
Speaker Change: And we see here the cost actions, we took during the last year and it's now flowing through the p&l and we continue, of course, to take actions to improve our cost base and that should also provide benefits over time.
Speaker Change: While we expect the overall Market environment uh or macroeconomic environment to remain uh in fluid or dynamic. Uh we expect the Run Market will blow broadly be stable for the remainder of the year.
Speaker Change: For the land Market to return to long-term growth. It remains clear that the industry needs new monetization opportunities.
To that end, we continue to execute on our strategic initiatives to create new use cases for mobile networks. The first major use case is fixed wireless access now has more than 160 million subscribers and more interestingly, the net promoter score is often higher than for fiber.
Speaker Change: So, to take full advantage of 5G, operators need to transition to 5G Standalone networks because that will enable differentiated connectivity Solutions.
Speaker Change: And it is now encouraging to see customers, uh, with 5G sa coverage actually offering service Innovation like Network slices for Mission critical applications.
In addition to that, we see network apis, as 1 of the key monetization engines for the industry as well as for us.
Speaker Change: So far revenues are small but we see great interest in some initial API. Use cases such as fraud detection,
Speaker Change: Uh in the quarter, our joint venture iduna expanded to all 3 operators in Japan and with that we Now cover major markets with a doona.
Speaker Change: In parallel, to executing on our strategic priorities. We're focusing on strengthening Eric's on to succeed across varying market conditions and that of course, in include discipline on pricing and cost.
Speaker Change: And this is in this quarter to reflected in Opex coming down from last year. As we as a result of all the cost actions, we have taken.
Speaker Change: And over the last year we have reduced our total number of employees by about 6% or 6,000 uh while we had organic growth and it's good now to see that actually coming through the numbers.
Speaker Change: And we see opportunities to further reduce costs following the structural actions like the combination of 3 Market areas into 2. Uh, but we also see and expect big benefits from the use of AI.
Speaker Change: And that's 1 of the reasons why we expect restructuring costs to remain elevated during the year.
I think AI could be 1 of the absolutely most important Technologies we've ever seen. And for us, it's a key part in how we design and operate Networks.
Speaker Change: So we're increasing our investments in the area. You might have seen this past quarter that we announced an AI Factory Consortium.
Uh here in Sweden that will give us access to the latest chip and compute power.
Known to fully support these new type of use cases. So for example, we're talking low latency and guaranteed Uplink performance.
Speaker Change: So this for us I would say is really a fundamental area, so it's critical that we continue to lead in AI.
Speaker Change: so, uh, before moving on, let me comment quickly on the market development, we saw in Q2
Speaker Change: Uh, in market area, America sales increase by 10% year-over-year with good growth in North America. And that's, of course, encouraging as North America is often a front runner Market
Speaker Change: Both networks and Cloud software and services grew uh, benefiting from previous contract wins.
Speaker Change: The strength in North America was partly offset by lower sales. In Latin America where we continue to see intense competition from both eastern and western vendors.
Speaker Change: Since in Europe, Middle East and Africa, declined by 1% year-over-year in Europe. Sales actually increased slightly supported by Network modernization
Speaker Change: Europe is also Market where we see high competition from all vendors.
Speaker Change: Uh, we're confident in our competitive portfolio and Technology leadership. So we remain commercially disciplined as we approach the market.
Speaker Change: In Southeast Asia, and India, sales decreased by 22% year-over-year. This was primarily due to the temporary pause in network investments. In India related to specific Market, uncertainties
Speaker Change: But, but southeast Asia is also an area where we saw increased competition.
Speaker Change: Lastly sales in Northeast Asia declined. By 15%, this was due to reduced customer investments. In some 5G, front runner markets.
Speaker Change: But in the quarter, we have made strong progress on our discussions with customers in the Japanese Market in line with this. We also announced and I think you've seen that, we will set up an R&D Center in Japan.
Speaker Change: With that, I would like to hand over to Loris to go through the financial details. More in detail of the financials more in detail. All right. Thank you. Bye.
Loris: Let me start by giving some additional points to the group before, discussing the segments.
Loris: Net sales in Q2 total 56.1 billion with Organic sales growing 2% year on year.
Loris: Reported sales declined by 6% with the current impact of 4.7 billion driven by the strengthening of the Swedish Crone against US dollar and other currencies.
IPR Revenue increased to 4.9 billion in Q2 from 3.2 billion in q1. The increase mainly related to previously unlicensed periods.
The Run rate existing uh, in Q2 or coming out to Q2 is around 13 billion.
Loris: The adjusted gross margin for Q2 came in, at 48% up from 43.9% in Q2 last year.
Loris: And margin improvements were broad-based, across all segments, driven by IPO Revenue favored, product, mix and the cost reduction initiatives.
Loris: It's worth noting that gross income had a negative currency impact of 2.4 billion.
Loris: Compared to q1, gross money was slightly lower mainly due to lower gross margin in networks, which was expected and which I will cover later.
Loris: Operating expenses, excluding restructuring charges stood at 20 billion.
Loris: Around 3 billion lower uh than last year about half of this reduction came from cost initiatives and the rest is mainly currency.
Loris: even with the currency head, we know, 1.4 billion adjusted, the beta went up by 3.4 billion reaching 7.4 billion,
Loris: This Improvement was driven by lower operating expenses and higher gross income, bringing the beta mod into 13.2%.
Loris: On the cash flow side before m&a, we reported 2.6 billion, which is down compared to last year.
Loris: And last year's cash flow benefit from significantly from reduction in operating working capital. Thanks to the completion of large-scale rollout projects and the substantially lower inventory levels.
Loris: So, let's move to the segments.
In network sales, decreased by 5% year on year to 35.7 billion with a negative currency impact of 3.1 billion. So organic sales increased by 3%
Loris: In Market de America's organic sales show. Good growth organic says also grew slightly in the market area, Europe, Middle East and North Africa.
The most significant drop in India.
Loris: IPO revenues. Also increase supported by the settlement.
Loris: The networks adjusted gross margin came in at 49.5%, benefiting from IPO licensing, Revenue cost reduction initiatives and favorable Market mix partly of set by terrorists.
Loris: Compared to q1 margins declined somewhat in Q2 as expected, the positive impact from higher IPO, licensing Revenue was offset by less favored market and product. Mix and to some extent tariffs,
Loris: Networks, adjusted a bit to increase by 1.2 billion to 6.5 billion, despite the negative currency impact of 1.533 billion.
Loris: The beta margin improved significantly year on year. Moving up to 18.2% from 13.9
Loris: This was driven both by increased cross income and the lower operating expenses.
Loris: Turning to segment, cloud and software and services.
Loris: Sales declined by 5% year-on-year to 14.4 billion, which include the negative currency impact of 1 billion.
On an organic basis, sales grew by 1% the growth in market area, Americas and IPO licensing.
Loris: Partly of set by declines in the other Market areas.
Adjusted gross margin came in very strong in the quarter at 43.2%. This was a result of a favorable sales mix with a higher share of software and increased IPO revenues but also did the continued, focus on the delivery performance and Commercial discipline.
Loris: adjusted to 1.4 billion with a mod, you know, 9.6%
Loris: Supported by higher gross income and lower operating expenses and including a 0.1 billion negative currency impact.
Loris: In Enterprise sales, decreased by 14% And organic sales were down 6%.
Loris: organic says, in Enterprise Wireless Solutions grew by 5%, benefiting from higher products and subscription sales in enterprise Enterprise networking,
Loris: And Global communications platform declined by 9%, impacted by the decision taken last year to reduce activities in some countries.
Loris: We expect Enterprise sales to stabilize during 2025 on an organic basis.
Loris: Excluding currency movements and the impact of iconic, which is expected to close during Q3.
Loris: Adjust the gross margin increased to 54.9%. This was driven by the focus on more profitable market. Segments in global communications platform and stronger product, mix in Enterprise Wireless Solutions.
Loris: Adjust the debate. That was minus 0.5 billion.
Loris: Turning to free cash flow, which was 2.6 billion before m&a broadly in line with the previous quarter.
Loris: And operating cash flow was also similar to q1 at 4.1 billion.
Loris: With the benefit of higher earnings, broadly of set by changes in other operating net assets.
Loris: Investing cash flow. Cash outflow was 10.9 billion reflecting investments in interest-bearing securities.
Loris: The net cash decreased to 2.6 billion compared by 2.6 billion, compared to the previous quarter.
Loris: Dividend payments of 4.8 billion. More than offset, the positive free cash flow in the quarter.
Loris: So next, I will cover the Outlook.
Loris: Global uncertainty continues with potential for further tariff changes.
Loris: And broader macroeconomic factors like currency and trade flows. This can affect customer behaviors and investment decisions over time.
Loris: With that, in mind, turning them first to sales.
We expect networks, Q3 to be below 3 year average seasonality. And this is mainly reflecting the mechanical impact of the higher IP or licensing Revenue in Q2.
Loris: In Cloud, software and services. We expect sales growth to be similar to average 3 years, seasonality in Q3
Loris: both of these indications, assume current exchange rates and no tariff changes.
Loris: Next, uh, networks cross margin. We expect net Network loss margins to be in the range of 48 to 50% for Q3
And with that I hand back to you uh, via thanks l.
55 following Global Communication platform, returning to sequential growth.
Loris: It's encouraging to see continued momentum in our strategy. In our customer discussions, there continues to be strong interest in 5G Standalone networks, that provide differentiated connectivity.
Loris: And we're seeing new use cases to monetize the network Investments, taking shape fwa defense Mission critical. And we start to see different Enterprise applications.
And many Enterprise use cases are now moving from proof of Concepts into real industrial. Deployments I would say this is exciting but of course, uh, it takes time to create these new markets.
Ultimately the exact timing of investment decisions will be in the hands of our customers but we believe the mobile network Market will remain broadly stable for the rest of the year.
In this environment, we continue to invest in technology leadership. While also structurally improving our business through rigorous cost management and by improving working capital.
Loris: This way, we're positioning, Eric on to manage, short-term Market, swings and drive. More margin expansion, even in challenging markets,
Loris: At the same time, we remain well positioned for the long term and to drive growth in our business.
Loris: But before we turn to Q&A, I would really like to thank all my colleagues for their really hard work in making these results possible.
Daniel: With that let's open up for Q&A. So over to you Daniel.
Daniel: Thanks Maria. We'll now move to the Q&A section.
Speaker Change: As a reminder, if you'd like to ask a question, you'll need to press star 1 and 1 on your telephone and wait for your name to be announced. If you're streaming the webcast, could you mute the audio from the webcast? While asking a question to minimize any feedback please?
And if I can request as usual, just 1 question per participant. So we've got time to hear from as many of you as possible today.
Speaker Change: Thanks if we can take the first question. The first question today is going to come from Sandeep. Daesh Pandi at JP Morgan Sandy, please go ahead.
Sandeep: Yeah, hi. Thanks for letting me on. Um, my question is, about your guidance, on the gross margin in the Network's business. Uh, you're guiding to a pretty robust gross margin into the next quarter in the car in the second quarter. You had some positive impacts from the uh Lenovo deal that you signed in the quarter. So are you expecting uh, to sign more deals in the second quarter?
Speaker Change: Water. Which helps the margin or the makes shifting because of some particular Reasons. I'm trying to understand the Dynamics in the gross margin or in networks in the second quarter. Thank you in the third quarter. Thank you.
Yeah.
Speaker Change: Uh, when it comes to the margin Outlook there, this is what we see when it comes to the product and Market. Mix that we have at hand now coming into the quarter and it's not uh, related to uh, IPR. It's more the underlying margins that we see coming uh, into the quarter. So that is what we expect.
Speaker Change: So uh are you saying also that India will remain weak in the third quarter even though it was weak in the second quarter?
Speaker Change: I think, uh,
Speaker Change: The pause that we saw now is temporary when it will start coming back. That I think is difficult to to say. So we don't have too high expectations already in Q3 for for India.
Speaker Change: Well, 1 1 Thing That is not don't take this as an India comment. But the last few years we've actually worked quite a lot on reducing the sensitivity, on gross margin to to different margins and we're we're in a better shape today.
Speaker Change: Uh than ever before which makes it a bit more also predictable in that sense than some markets may go up some markets may go down.
Thanks, if we move on to the next question, please.
Sebastian: The next question is going to come from Sebastian stabber at Kepler Shiro. Please go ahead, your line is open Sebastian.
Yeah. Uh thanks for taking my question on the Opex. It was a little bit below expectation. How do you see the Opex trending in the rest of the year or for the full year? I have still forecasting a flattish Opex. For this year there is a little bit of a downside to the Opex level. Thank you.
Uh, over the last year is coming through in in the Opex here. Now in the second quarter, uh, so that that we are happy to see, it takes time before. This activity is really come through, when it comes to the Outlook there. Uh, we, we see, uh, similar level in Opex, uh, in the first and the second half. Normally, we have a bit of a higher seasonality cost in in the second half, so that is a little bit, how, how we see it going forward. But it it, as I said, it takes a bit time before the cost reduction starts kicking through into the numbers. So, so that's why, uh, we we stay on this. So say view upon the the second half of the year.
Sebastian: Okay, thank you.
Speaker Change: Thanks, Sebastian. Moving to the next question, please.
Speaker Change: The next question is going to come from Jacob bloomstone at, uh, the NP Barry bat. Jacob, your line is open.
Jacob Bloomstone: Great, thanks for taking my question. Um, I was just wondering if you could just expand on any tariff related effects during the quarter. Uh, you previously guided for 100 basis points margin hit was, was that what actually happened? I didn't see a number were there. Any pull-ins? And I guess if you can give any commentary on what your expectation is for tariff, related effects in in Q3 are thank you. Yeah. When it comes to tariffs, uh,
Jacob Bloomstone: Uh, starting with the pooling, we assume remember. We had a bit of impact in q1 with some uh, pool in some impacts on the product mix support in the margin in q1 there. This quarter has been been more normal. You can say, uh and as for the impact we gathered around uh around the percentage point, we came out around this 1 percentage point a little bit lower, uh here in the quarter. And that is we expect similar levels going forward, given what we know today. And oh as you know, uh there are quite some messaging around the tariffs so we will see. But based on what we know today this is where we stand
Jacob Bloomstone: Thank you.
Speaker Change: Thanks, Jacob. Moving on to the next question, please.
Speaker Change: Next question, today is going to come from Frederick lethal at handles bank and Frederick your Line's open.
Frederick Lethal: Thank you very much. Thank you for taking my question as well. Uh, I was wondering if you could sort of describe a little bit more of the trends in the North American Market, we know, since
Frederick Lethal: Q3 of 2074 that you started to ramp up with 1 of your large clients there. And question is how this sort of project looks and how if it's going to sort of ramp down gradually or if it is, so that the other big clients in North America are mitigating part of that or, or something like that, could you, could you describe that a little bit? Would be interesting. Thanks. All right.
Frederick Lethal: I got that 1. As you might remember, we started seeing a ramp up, uh, during 2 to last year, and then coming into Q3, it was, uh, coming up on a high very high speeds. So, and and high pace. And that now coming, uh, this year, we are more on a, on a stabilized, good level, uh, on say, so the compare, the comps will be difficult, more difficult coming in, of course, in the second half of the year, but overall, it's quite good pace and it America. And North America is not only 1 customers. They are free customers. At least, uh, that, uh, is important and they are all showing good investment levels here. Also going forward, that is what we see. I don't know if you want to add more on the US market, okay, thank you.
Frederick Lethal: Thanks Frederick.
Frederick Lethal: Moving to the next question, please.
Speaker Change: Next question is going to come from the line of Andrew Gardner at City Andrew, please go ahead.
Andrew Gardner: Hi, good morning, thank you for taking the question. Um, another 1 on the Americas. If I could just following up from that last answer last, um can you give us a sense as to where you think the customers are? And I think you know, across all 3 main customers there, in terms of the inventory replenishment you clearly had a significant draw down impact of late 23 through most through the first
Andrew Gardner: Just a bit of detail around that would help with the margin. Uh Outlook. Thank you.
Speaker Change: All right. Yeah when when it comes to inventory levels, I think there among the different uh operators they are fairly balanced as it looks now they they work a little bit different depending on on which 1. But uh, based on how they operate, they they seem to be fairly balanced. Uh, so that's good. You can say
Speaker Change: And when it comes to the mix in in the revenue base, we will see more of of services coming in uh, into uh, enroll like activities into the, uh, to the revenue base coming forward here. So that, that is a bit of a difference that we will see. But, uh, as I also have said, previously, is that we will have, uh, the that can be shifts in the mornings between different quarters. But when we look at more, the, the long term view here, uh, we see rather stable, uh, good development here for the looking into the full year.
Speaker Change: Understood. I suppose I mean as you point out, you know the mix maybe changing a bit but your gross margin Outlook. Is is still steady? Yeah, so that's sort of 3 to from 2q. Yeah. Yeah.
Speaker Change: That's what we see. And then, of course, there is we are an industry, which is very Project based, and the product mix has an impact, but given what we see now, this is the guidance we give and I think that's, uh, that is what we expect.
Andrew Gardner: Thanks Andrew. Moving on to the next question, please.
Speaker Change: Next question, today is going to come from the line of Andreas yolen at DNB caridi. Please go ahead Andreas.
Andreas Yolen: Thank you and uh good morning uh a little bit more uh perhaps future looking question. And and the comments that you made on uh 5G Standalone and uh the Investments you do in AI. Uh, just curious how you see that perhaps impacting your your business in terms of product mix. Uh, and also
Speaker Change: Given that you have now. Uh uh, as you said, never been in a better position when it comes to gross margin. How do you see this operational? Leverage going forward, if if we should see more Standalone business or more AI related uh orders from from your customers? Thanks. Yeah. If we start on the uh, 5G essay, I think this is an important question Andreas and and it's actually 1 of the key Promises of 5G.
Speaker Change: Uh, we know we've been talking about the low latency, the high speed, the higher up, link, Etc. All of that is in reality related to 5G essay.
And 5gs I have so far had only limited deployments.
You know, it's about a quarter of the operators with with any type of of 5G sa Network. And if you start to look at broad-based rollout, it's really 1. In the US 1 in India. Of course, the Chinese you have a couple other countries with with bigger but it's in in reality very limited rollout.
Speaker Change: It's 2 things that need to happen in the network. 1 is midband coverage. So prepare the radio network with midband as you know, that's still a very low buildout coverage in in, for example Europe, it's probably less than half pop coverage. It's 90995 present in the US, China. India.
Speaker Change: So you the Europe is clearly behind on that. The second part is you need to upgrade the core. Uh so that's another opportunity and those 2 things.
Speaker Change: Uh, we'll have to happen to take full advantage of the capabilities of the network.
Speaker Change: So what we're starting to see and, and this is, it's still, um, of course early, uh, but we're starting to see new type of devices coming. Think about the AI glasses. If you're going to have that, you need ultra low latency, you need guaranteed low latency, and you need a very high up link performance.
Speaker Change: Sample. Uh, consumers are willing to pay for these things and we start to see them happening. So I'm rather encouraged by by
Speaker Change: the service Innovation than starting to happen on 5G essay. Uh, are we there to point to Big revenues for us know? Uh, but we're starting to see that interest and that's going to drive need for more radio coverage midband and cooler.
Speaker Change: Then the AI side I I think this is uh is such a fundamental technology. Uh it attacks. What kind of
We interact with with the technology in many different ways.
Speaker Change: So, for example, if we started at the basics, we we use AI, of course, as coding bodies, uh, but, but we're also using it in other parts of internal operations to drive efficiency. Uh, we're going to see that happening. It's going to happen, increasingly so, uh, we see some benefits now, but that's going to come more.
Speaker Change: Then it impacts also how the network is actually operated. So think about full Leo autonomous, uh, intent based networks. They will require AI as a fundamental component that's 1 of the reasons why we invested in the AI Factory.
So by having uh the the compute capability we can actually now start to develop those type of networks that you know the so 5G Network and the future networks will be so complex and you will need to be able to to to create Dynamic slices in there.
Speaker Change: That will require fully autonomous Networks.
Speaker Change: so we're convinced AI will be a fundamental part of that, and lastly, it will be a driver of traffic uh because the the
Speaker Change: Today all focus is on the llms and the compute and the data centers. That's all critically important. But another part of the stack is actually that applications. We need to move to the edge and when the applications move to the edge, they will need connectivity. And they will need Wireless connectivity. Uh, and that's why we work with a number of the uh, uh, device vendors on how the demands on the network will look going forward.
I want to link that also to a do now, uh, and 1, which actually, that's going to be 1 of the critical applications for for um, iduna and bondage, how you actually create that on demand, the network slice, basically on API based demand and you create a slice for your glasses with when you need ultra low latency, for example. So so we see that quality of service is being interesting or increasing
Speaker Change: recently important, that's why we now see the the the number of operators being signed up in iduna uh and we have very a number of countries around the world most recent Japan,
Speaker Change: so I, I think
Speaker Change: We're still very early in, in AI in in how applications are going to start running. But I think that it's actually going to be a key, uh, driver of our business going forward. Both on traffic on the way we operate networks, and the way we run Ericson.
Speaker Change: Very good. Thanks a lot. A lot to digest.
Speaker Change: Sorry about that, but it's a very exciting time we're in, I think.
Speaker Change: Yeah.
Andreas Yolen: Thanks Andreas.
Andreas Yolen: Moving to the next question, please.
The next question today is going to come from Simon granath at ABG your lines, open. Simon.
Simon Granath: Thank you, Daniel and good morning, all. And so now with the US market perhaps normalized and as you highlight in the report, delauro estimates suggest overall Stable Market. I I had a question on what are their areas you may boost your efforts in in order to improve sales and in particular, I am curious on what you're seeing in defense and 5D for such areas because you do highlight the fans in your annual report but has not really talked too much about its recently. So could this be a needle mover or what is needed for that to happen? And I I think it also makes sense.
Simon Granath: Comes from a market share point of view. That's entities like NATO is unlikely to choose European operators, with non-trusted round suppliers so that could perhaps also benefit you, what are you seeing? Thanks.
Simon Granath: Yeah, I I the comment on that. We we we're doing a couple of things. Um,
Simon Granath: We first of all, I think the potential is is actually substantial uh and and the the reason for that is, of course also defense benefits from connecting everything.
And 5G is the way to connect.
Simon Granath: Source, uh, Etc. So so I think there is, there is a big opportunity here, uh, for 5G technology. Also, in defense,
Simon Granath: We see that in discussions uh that we're having with uh in a couple of countries around the world. Uh, we we launched last year and I think that's what you refer to EFT. It's Eric some federal Technology Group in the US.
That is a specific entity to work with the Department of Defense in the US.
Simon Granath: Uh, still the um, I will say the revenues are are small on those applications but I actually think it's uh it's a good growth opportunity for us for the future.
Simon Granath: It's realistic to say that the large part of the increase defense spending in Europe, most likely will be allocated to connectivity, uh, because that is a critical part of of a modern Defence Force. So, I think this is uh, a very good opportunity for Western vendors like you noted, uh, because I, I think that that will be, uh, far-fetched to think that we go with high-risk vendors.
Simon Granath: That's 1 part of the defense, right? That's a pure defense applications selling to to Department of Defense. I think that's an important part, but I would also highlight another area that I think as a major opportunity is Mission critical so far, many countries around the world have very old connectivity networks for
Simon Granath: uh, you know, police officers First Responders in general
We're seeing an increase in interest here in building out that coverage. Uh, and we are in in big in in many discussions around the world with, uh, countries of building out. Those type of new Mission critical applications. I think that's going to be a substantial portion.
I will say, sales cycle there. Uh, we, we may say, it's, it's long on the csps, uh, but the reality is the mission. Critical is typically a longer sales cycle. Um, so, so as we, uh, land contracts. There we will, of course, uh, disclose and talk more about it. But I'm, I think this is, uh, rather big opportunity.
Simon Granath: And again, you know, think about the the real time applications the safety. You can provide for firefighters being connected all the time when they're in the building or police officers.
Uh, having real time connectivity, uh, with with body cameras on these are changing the way you operate First Responders and, and that's the interest we're seeing. So I'm I'm actually I think this is a big growth opportunity that will be net additive to the market that we don't have today.
Simon Granath: Thank you so much, appreciate it.
Speaker Change: Thanks, Simon moving to the next question, please.
Next question, is coming from the line of Orrick. Grasa of Baron at Bernstein olick. Please go ahead.
Speaker Change: Yeah, thanks very much. Just come back to um, to Jacobs question on tariffs. Um,
Speaker Change: I'm interested. Um learning more about what concrete measures are you. Are you are doing at the moment in terms of mitigation, is this is this essentially sort of, um, low hanging fruit at this point because the uncertainty is so high and you're not quite sure whether you want to realign your supply chains, given the Tariff situation, you know, hasn't settled yet and you're more or less waiting before you take far reaching decisions or are you already on the drawing board to to um you know, to really realign your supply chain for for the kind of tariff changes that that we don't know exactly but we know the directionally. So I just like to know where your state of thinking is what what actions you you have already taken or what actions you will soon. Take. Thank you. Mhm. Well I think when it comes to that as you say it is very much around the supply chain uh and the sourcing and what uh, we have not made any firm decisions given the uncertainty was actually going to happen. So but we are
Preparing to see how can we move. And that work started already, uh, lost during last year, at the end, looking at what opportunities do we have, and how can we ramp up and ramp down? Uh, in different parts of the world, where we have production? So that is prepared. And then
Taken.
Speaker Change: And I would only add as, you know, we we already built a factory in the US.
Came online about 2020. Uh, so it, it's
Speaker Change: In the making, uh, we we kind of saw this.
Coming in the, in the during the first Trump Administration. So we built that factory and that's fully operational. Now gives us much more flexibility.
Speaker Change: So so we are in that sense, I think trying to manage the impact. Uh, with the manufacturing footprint, we have anything more, we need to look at the how the the tariffs eventually will will Shape Up.
Speaker Change: Great, thank you very much.
Speaker Change: Thanks, alric. Moving to the next question, please.
The next question today is going to come from Felix Hendrickson at Nora. Please go ahead. Felix.
Felix Hendrickson: All right, thanks for for taking my, my question. I have a question on uh, your confidence in your ability to get market share. Because if we reel a few years back into your latest Capital markets today, I think you stated that in networks, you are targeting to gain 1, percentage points, uh, for year of additional marketing. And now, you will stay with the AT&T deal taken considerable steps forward in that operation within the North American Market range. But looking ahead, what is the reach and where you have the highest conviction on that, Derek and can get further market share in the ren Market.
Speaker Change: Going for what? Thanks.
Speaker Change: Yeah. Um, a few years back, we were all talking about high-risk vendors in Europe, right? Uh, I think that as it looks right now that's not an opportunity. Uh I think we need to be honest about that.
Uh and and um that that's the way I look at it.
Speaker Change: so, we look at the world in, in a way, having a few
Speaker Change: Big. Um,
Speaker Change: Home markets, whatever you want to call it, but kind of markets where we really need to to be strong.
Speaker Change: Uh, clearly the US clearly, um, India, clearly Japan, right? Then you can add some more like the UK, Australia, Etc. Uh, but we are investing quite substantially to make sure that we are in a very strong position in those markets. And that's that's why you should see the investments in the R&D Center in Japan, for example, as a way to create that um local presence that allow us to have a a stronger uh Market position.
That's what we have done in the US. We built a manufacturing site. There we established R&D there. Uh, we've done in India as you know, we have manufacturing there, we have.
Speaker Change: Uh, our big, ah, maybe not close. It's the biggest country for us from an employment point of view. It's not the biggest on R&D, but we have a substantial R&D presence. Now, we're doing the same thing in Japan. So I I, I'm, I'm quite confident. Uh, you know we can
Can strengthen our position uh in those uh other 2 markets. We're already very strong in North America uh but we can do more in uh in India and and and Japan we see those as as critically important for the long term success.
Speaker Change: Thank you. That's very helpful.
Speaker Change: Thanks Felix. Moving on to the next question, please.
Speaker Change: The next question comes from Sami sares at danco bank. Please go ahead Sammy.
Uh, hi. Thanks. Uh, uh, can you elaborate on the strong results that cloud software Services? Uh, you had almost 10% D that they margin in the second quarter.
Speaker Change: They say a, a reasonable uh uh assumption on underlying level going forward. And then maybe uh also if you can update us on the IPR, run rate following the Lenovo settlement. Thanks.
Speaker Change: Hm, if I start with the IPR run rate, coming out to the court. Here we are at the 13,000.
So that is where we are on the Run rate coming out to the quarter.
Uh and then when we come to Cloud software and services as you highlight, there it is, a very strong mode in coming out in the in the second quarter here supported by uh, IPR, uh, and a very good product, mix with a high software share. But having said that, it's also to continue to Improvement that we have, uh, seen for quite some quarters uh, in Cloud software and services. So that underlying Trend that we have seen. If you go back a couple of quarters, that is what we expect going forward and aiming at, uh,
In here in the midterm, that is still there for sure.
I would I would only add there saying, you know, when we put in place the the turnaround plan for bcss, it had a capital components, write 1 was increased, the software share.
Commercial discipline and take costs out. And I would say the the combination of those 3 that actually drive. Uh the result today of course we got helping you to buy the IPR but you should look at that underlying as kind of the the trend is actually continuing
Speaker Change: Can I add 1 thing on the IPR? And we may not talk enough about it. Most of the, uh,
Speaker Change: Settlement. Uh, you know, it's kind of divided into 2 parts. 1 is is a settlement now and then a future, um arbitration. Uh, so so the Run rate will be more impacted by the arbitration than by the historic settlement. Mhm.
Speaker Change: But with that ends up, you know, uh we'll we'll we'll have a view, but we'll, we'll see where it ends up.
Thank you.
Abby: Thanks, Abby.
That concludes the Q&A session for today. So uh with that. Thanks for joining us. Everybody and thanks for your time today. Thank you.
Thanks everyone. Thank you.