Ericsson Lm Telephone Co Q2 FY2024 Earnings Call

Hello, everyone, and welcome to today's presentation of Ericsson's Second Quarter 2024 Results. Today, Borje Ekholm, our President and CEO, joins us by video, and Lars Sandstrom, Chief Financial Officer, is here in the studio with me. 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 are subject to risks and uncertainties. The actual results may differ materially due to factors mentioned in today's press release and discussed in the conference call. We encourage you to read about these risks and uncertainties in our earnings report as well as in our annual report. I'll now hand the call over to Borje and Lars for their introductory comments.

Well, thanks Daniel, and good morning, everyone. First, I'd like to cover some of the key highlights from the quarter before Lars really goes through all the financials in more detail. So, in Q2, we continued to work with our customers and focused on leveraging our leading technology as well as optimizing our business through our strategic initiatives, which of course includes our cost reduction actions that we have taken. All these actions made it possible to deliver a very strong performance, and we saw an expansion of the gross margin despite a very challenging overall RAN and mobile networks market. So, gross margin for the group came in at 43.9%, and this was supported by the proactive actions and our competitive portfolio. It was of course positively impacted by a new 5G licensing agreement and we're now clearly on track to deliver our SEK12 billion to SEK13 billion revenue target for IPR for 2024. Our IPR portfolio clearly illustrates how our technology leadership is creating value. Let me also briefly touch upon the impairment we recorded last week. This relates mainly to Vonage and reflects lower anticipated market growth rates in the Vonage portfolio. However, the strategic rationale for the Vonage acquisition remains, and that is really to create new ways to monetize network capabilities and network features. Long-term, we see this to be crucial for the telecom industry, and actually, if we cannot generate the extra revenues from the features of the network, it's very hard to justify future investments in later generations as well. So, we believe this is a critical initiative for us and for the industry. Network APIs and the global network platform we're creating remains central to this portfolio and strategy, and we continue to see good traction. We had two additional mobile operator partnerships announced in Q2 and we are now at 12 in total. But let's move to the next slide and look at the market development.

All right. Thank you, Borje. Let me start by adding a few additional points on the Group before discussing the segments in more detail. Organic sales declined by 7% in the quarter and this was primarily driven by networks. Some of our larger customers in North America did selectively increase their investments supporting return to sales growth in this key market. But our other markets declined. And as Borje already highlighted, we deliver good expansion in our adjusted gross margin at 43.9% in Q2. This benefited from our strategic actions on cost as well as strong IPR revenue. As Borje mentioned, we signed a new IPR contract in the quarter which includes some retroactive revenue, and reported OpEx was significantly distorted by the Vonage impairment charges in Q2; in the slide, you can see the underlying development. Including the impairment, OpEx was up by SEK1.2 billion year-on-year. Savings from our cost actions were balanced by salary increases and higher bonus accruals. We also increased investments in two areas: in R&D for technology leadership and operational resiliency and in SG&A to drive operational efficiency in enterprise. We are continuing to take action on costs including sizing our organization to serve the new level of customer demand and we recently concluded the union negotiation in Sweden on planned headcount reductions. Adjusted EBITA increased to SEK4.1 billion in the quarter with a margin of 6.8%. With that, let's move to the segments.

In Q2, we saw North America returning to growth for the first time since 2022. This was driven by the end of the inventory adjustments that we had predominantly last year and into the beginning of this year, but also by some larger customers selectively increasing their network investments. We benefited from the recent and large contract win that we announced late last year. We started to have some deliveries in Q2, but that will provide further support during H2 this year. When you look at the rest of the market areas, we see they're all declining. So, it's really a challenged market environment. In Europe and Latin America, sales decreased by 3%. I would highlight here that we are actually seeing a sharply increased competition from Chinese vendors. That includes both in Europe, but particularly in Latin America. In Southeast Asia, Oceania, and India, sales decreased by 44%, following the normalization in India compared to the record-paced 5G rollout of last year. Lastly, both Northeast Asia, the Middle East, and Africa saw declining sales due to a slowdown in operator investments and additional macro pressure. With that, I would say it's time for Lars to go through the numbers more in detail.

In networks, organic sales were down by 11% year-on-year as customers continued to be cautious with their investments. The largest slowdown was in India, following the rapid 5G build-out last year, but we did see a return to growth in North America with sales up 20%, and there was also a benefit from the new IPR licensing agreement signed in the quarter that included retroactive elements. We generated a strong adjusted gross margin of 46.1% with a favorable business mix, IPO licensing revenue, and cost actions all contributing. Adjusted EBITA increased to SEK5.3 billion compared to SEK4.9 billion last year and we reached an EBITA margin of 13.9%. The increase in EBITA was delivered despite lower sales and significant headwinds from salary increases and bonus accruals. This shows the benefit of our cost actions, technology leadership, and competitive product portfolio. In the Cloud Software and Services segment, we continue to execute on our strategy to strengthen delivery performance and commercial discipline. Organic sales were stable year-on-year with slight growth in core offset by lower sales in other parts of the portfolio. We delivered an adjusted gross margin of 47.2% and EBITA margins continue to improve on a rolling basis. Our IPR revenues increased to SEK3.9 billion in the quarter with the new agreement and we continue to see further growth opportunities with additional 5G agreements and potential to expand into additional licensing areas. The revenue run rate is now at SEK12 billion, so we are on track to reach a target of SEK12 billion to SEK13 billion for 2024. The timing of growth will vary as we seek to optimize the value of new agreements. Turning to free cash flow, which was SEK7.6 billion before M&A in the quarter. This strong improvement compared to last year is a result of a significant improvement in working capital. This benefited from a favorable change in market mix, a substantial reduction in inventory levels, and lower accounts receivables due to lower sales volume. There was also a benefit from an inflow of SEK1.9 billion related to the one-time gain we reported in Q1. So, net cash increased sequentially by SEK2.3 billion here to SEK13.1 billion. Now turning to sales, we have delivered above normal seasonality in Q2, both in networks and in Cloud Software and Services, by around four percentage points in networks and free in Cloud Software and Services. We expect to carry this outperformance into the second half. Normal seasonality is a good assumption for Q3 for both segments. We will benefit from North America growth, but overall market conditions remain challenging, with our customers being cautious with their investments. In Enterprise, we expect sales to be further impacted by our decision to reduce operations in some countries.

To conclude, we're facing a tough market environment at the moment. However, I believe the results in Q2 underscore the underlying strength in our business as well as our competitive portfolio. Going forward, we remain fully focused on executing on our strategy to strengthen leadership in mobile networks, drive a focused expansion into enterprise, and pursue a cultural transformation. We continue to leverage our technology leadership while prudently managing our business. The actions we've taken, including our focus on costs, will allow us to keep investments critical to protect our leadership position and long-term competitiveness. This will ensure that Ericsson remains well-positioned going forward. At the same time, for the industry to grow long-term, we need to find new revenue streams for our customers beyond mobile broadband subscriptions. We must create new opportunities to monetize the networks and the investments our customers make in the networks through differentiated offerings. That's what our enterprise strategy is targeting, and network APIs is one of the key opportunities for us. Creating a market and new monetization models will take time, but we are seeing some very good traction. Our vision to become a leading networks and enterprise platform is unchanged. The foundation of this strategy is and will remain our leading mobile networks business. We will take every action needed to ensure that we keep our leading position, as well as our strong cost position and competitive position in the industry.

Thanks, Borje. We'll now move to Q&A. As usual, I ask that each participant pose only one question so we can hear from as many of you as possible today. I see the first question on the line is from Francois Bouvignies from UBS. Francois, your line is now open. Please go ahead.

Thank you very much. So my question would be on this Slide 8 that you show in the presentation where you display the adjusted EBITA margin and adjusted gross margin. Clearly, we can see a correlation between the gross margin and EBITA margin since 2022. In '19, '21, and '20, it's the same correlation directionally, but for some reason from Q4 '23 we see the gross margin going up, but the EBITA margin going down. I'm wondering why, because we see in Q2, for example, the top line increasing. So, should that help the scale? You have the North America increasing should help the geo mix and you have the IPR, which is almost all-time high, which should help the margins. So, I'm wondering why you have a disconnection between the gross margin and EBITA margins since the beginning of the year?

Thanks, Francois. I'll pass that to Lars.

Thanks. I think we have a somewhat higher cost base compared to what we had a couple of years ago when it comes to R&D, we have an increased level of that and this is on a quarterly basis. So it's not a rolling twelve. So that's why the significant lower revenue base is impacting quite a lot on the OpEx ratio. That's what is kicking through and also somewhat higher the difference there coming from the enterprise business, that is impacting to some extent as well, compared to where we were in 2022.

Do you move cost of sales into OpEx at all? I mean, because when I look at these charts, it looks like you are the cost base and you always invested a lot in OpEx increasing R&D in the last few years. So why would you invest even more now than before?

It is not more; it's the relative with a significant lower revenue base that impacts the ratios, it is not more cost per say in absolute levels, in that sense, it's the revenue that gives the impact.

Thank you.

I think you should think about it in a bit of a different way. Our cost base is in reality a base to drive competitiveness. It depends on which markets we're in, as well as our R&D intensity. The R&D is driven by the future. So, it's actually oriented towards programmable networks. That allowed us to win with AT&T. That win in reality doesn't translate to revenues until time after we make the investments. So, what you see right now is a situation where sales have fallen and we have kept the R&D intensity to be able to compete in the future and be successful longer term. So, you will get this, it's not that the cost base can follow revenues in R&D, because that's simply not the relevant timing to think about it.

Understood. Thank you very much.

Great. Thanks for the question, Francois. We're now ready for the next question. So, the next question will come from Alex Duval at Goldman Sachs. Alex, your line will now be open. Please go ahead.

Yes, good morning. Alex Duval. Thank you very much for the question. In your report, you state what normal seasonality is like on the top line. Curious to what extent one should take this for modeling purposes as the right quarter-on-quarter growth rate for the next few quarters. Clearly, you have the AT&T win, but then in your report, you talk about some of the dynamics in markets like Europe being tough. So, just trying to understand if AT&T should be added on top of that seasonality or if that's already included. Many thanks.

Sure. Lars, I think one for you.

I think what we say in Q3 here is we show the seasonality, and I think that includes the growth rate that we see in North America. Then, of course, we have a weaker situation in all regions outside North America. So that's why we say that the seasonality is probably a good indicator for Q3.

Very helpful. Thank you.

Thanks, Alex. Thanks for the question. We can move on to the next question now. So that will come from Andreas Joelsson at Carnegie. Andreas, your line will now be open. Please go ahead.

Thanks a lot, Daniel. Follow up on the former or the previous question, but maybe give a little bit more flavor into the various regions on the network side. So, North America, I understand the improvement is sort of a mix between the AT&T contract and improvement from others. How do you see that play out going forward? Are the customers a little bit more forward-leaning now than a year ago perhaps? And on the other regions, except the obvious headwind from India, where do you see the main reason for the customers holding back their investments currently?

Borje, maybe one this is we can pass to you and you can give a little bit of flavor around the various markets. Thanks.

If we start in the US, we had a big inventory adjustment and that really came out of the big supply chain disturbances from COVID. Our customers built up larger than normal inventory levels, that started to be depleted fully in the beginning of this year, which has led to a bit of this normalization in our sales. We're also seeing, of course, some customers here and the investment levels in the market have been very low for a number of years following the rapid build-out of C band. As network capacity starts to be used, we are seeing a different discussion, but I don't want to say that this is a turn, that's too early, but it's a positive indication that sales start to come back. The overall industry problem remains, which is really that unless we can monetize the new capabilities of the network, it doesn't really become a new source of revenue for the operators and marginal investments will only be done to manage capacity in the network. If you look outside of North America, I would say this is a problem in the industry where our customers, if you would generalize, and that's not entirely accurate because you have some customers doing better than others. But as an industry, return on capital employed has been under pressure for quite some time. That has driven our customers to actually cut down investments and sweat assets, which is something you can do for a period of time. The good thing for us is that traffic continues to grow at a very healthy rate. We see a growth rate coming back in the networks as well, which is quite positive. But again, underlying traffic continues to grow. But that's why you see the slowdown. If you look outside, you also see a bit of a macro challenge in Africa and parts of the Middle East, where predominantly Africa has had currency movements that actually make it very painful for our customers. So, when you look, it is a subdued environment right now where we need to control what we can control on our side: that is work on the cost side.

Perfect. That is very helpful. And may I also wish a great summer?

Thank you. Same to you.

Thanks for the question, Andreas. So, we're now ready to move to the next question. So the next question will come from Andrew Gardiner at Citi. Andrew, your line should now be open. Please go ahead.

Thank you, Daniel. Morning, all. If I could just do two quick follow-ups on the last points that you were making, Borje. First, on the US, can I take it that when you say 'selective investment' you weren't really expecting it? It's come sort of short lead time orders from customers, perhaps refilling a little bit of capacity here and there where they've needed it, but they're not yet giving you visibility beyond AT&T, perhaps, which is obviously quite specific, but they're not, the others aren't really giving you visibility into the sustainability of that into the second half. Is that a fair characterization?

Yeah, that's a fair characterization. But I would say, though, that given the changes, if you operate and roll out, you try to keep that at a relatively constant, and they've been buying less from us to deplete their own inventories. That just needed to adjust a bit of that is what you see.

Okay. And then also on the point you made, particularly in Europe and Latin America, where you're seeing increased competition from the Chinese vendors, do you feel like you're losing share as a result of this competitive activity, or are you able to hold share? But perhaps it's coming at the expense of price and margin?

You know, we like to manage our overall pricing and profitability and gross margin. So, it will all depend on specific situations. I'm sure we will lose some, but we'll do that because we think it's right for the overall gross profit of the company. So, you shouldn't expect us to be the most aggressive in the market.

Understood. Thank you.

Thanks for the question, Andrew. So, we'll now move on to the next question. That will come from Sandeep Deshpande from JPMorgan. Sandeep, your line should now be open. Please go ahead.

Thank you, Daniel. My question is on your IPR deals in the first two quarters, you've had two deals in Q1 and one in Q2 as well. What have been the one-offs associated with these deals, and what is the ongoing run rate associated with the IPR revenues? And I have a quick follow-up after that.

Lars probably.

Yeah. We don't comment on this. They have always, as you know, a retroactive part, and then it's forward-leaning. But you can see the jump in revenue. That is, of course, partly to a large part explained by the one-offs there. For the run rate, we are at around SEK12 billion now coming out of Q2. As we said, the target of 12 to 13 is well in reach.

Okay, thank you. And my follow-up is quickly on the United States and the US market. You've seen this recovery in the US market; is this mainly coming from the US market now where those inventories of parts that they were holding are not there anymore? Or is it that they are actually now starting up new projects? There is some new movement in terms of where the investments are occurring, or is it to do with inventory replenishment or AT&T new contracts?

Borje, maybe we can pass that one over to you.

Yeah, I think it's fair to say it's a combination of those, right. But we also know that the investment level has been, if you look at the underlying traffic growth and the growth of fixed wireless access, we know that traffic has grown. So that requires a certain level of investment. But we had the inventory adjustment, and now that they have run out of room to adjust that, they need to buy a bit more from us. So that is one thing that's clearly happening, but we're also seeing that they need to manage the network quality. That gives us some comfort that you have a bit of cyclical behavior in the investments. If you look historically, we've been at a low point, and now that starts to come back, that's a bit what you should expect. Of course, you have the big contract win as of last year, which starts to contribute in Q2, but it will be more in H2.

Thank you.

Thanks, Sandeep. We can move now to the next question. The next question on the line will come from Joachim Gunell from DNB. Joachim, your line should now be open.

Thank you. Can you just comment on where you are in India and the US in relation to what you would consider normalized sales levels at this stage?

Sure. Borje, do you want to provide some high-level thoughts on those two markets? Thanks.

In the US, we believe we are currently at the lower end of a more normal cycle based on historical trends. In contrast, India has returned to more normalized conditions now.

Understood. If I may, just a quick comment here in light of the competitive environment comments you made. What is your view of the component availability situation for your Chinese competitors?

The honest answer is they should comment on that. We see them quite aggressive in the market. Ultimately, it's a choice customers will have to make, how they think about their network resilience, decisions for the future, et cetera. It's really in the customer's hands to choose. This is more a comment that we see them increasingly aggressive.

Thank you and have a great summer.

Thank you. Same to you.

Thanks for the question, Joachim. We'll move on to the next question, which is going to come from the line of Daniel Djurberg at Handelsbanken. Please go ahead, Daniel.

Thank you, Daniel. And hi, Borje and Lars. I would like to just ask a little bit. You give a healthy network gross margin ambition here for Q3, 45% to 47%. My question is if it's also relevant to see this positive similar uptake also for Q4 or also into next year on the back of the mix you expect. That's the first question.

As you know, we have the uncertainty going forward on volumes. That's why we try to keep and stay onto the Q3. That's where we guide now with the 45% to 47%. On the positive side, we have the cost-out activities that we are doing that is helping us. But we also have a downturn in the market. Therefore, we don't see that we should give you guidance going after Q3.

I see. And just as a follow-up on the harsher competition in Sub-Saharan. Is it mainly your number one competitor, Huawei, or is it also broader, such as ZTE or Samsung that are also more aggressive?

You're seeing an aggressive, competitive market, right. It's fair to say, and we're mentioning the fact that everyone thinks the Chinese vendors have kind of disappeared, and that's not true. That's why we wanted to bring it up. It's always been very competitive.

They should go to Barcelona in February, I guess. That they will learn. Okay, thanks, and have a great summer.

Thank you.

Thanks for the question, Daniel. We'll move on to the next question now, please. So the next question is going to come from Erik Lindholm at SEB. Erik, your line should now be open.

Yes, thank you and good morning, everyone. You mentioned taking some cost actions here, both in enterprise and outside enterprise. Is it possible to quantify these actions and what they should mean for the second half, especially maybe in light of not expecting normal OpEx seasonality? Thank you.

Just to help you a little bit on the guidance before we dive into the as we said, the enormous seasonality. You should not, it does not really apply since we are continuously having impacts of the cost reductions, but on the other end, we have salary inflation coming in. Last year we had very low provisioning for incentives. Those are, I would say, counterbalancing. We have also some dedicated investments in the R&D area. So, that is a little bit just to try to help you to understand. If you look at H1, where we had a similar development with cost out offset by salary increases and provisionings, we see that for the remainder half of the year.

All right. Any comments on where you're taking out costs, which areas, in both in enterprise and outside of enterprise?

Yes, I think the cost base is significantly larger in the mobile network side. We need to adapt to a declining market, so that requires us to adapt accordingly over time. We don't point out a specific area. It is broad-based in the different markets and activities where we are active.

All right. Thank you.

Great. Thanks for the question, Erik. We will now move on to the next question. The next question will come from Sami Sarkamies from Danske Bank. Sami, your line is now open. Please go ahead.

Hi. Thanks. I would actually like to continue on the cost topic we just discussed. Could you provide additional color on the OpEx development during the second quarter and provide some color on the outlook for the rest of the year? If you look at the second quarter, OpEx was somewhat higher than what you had guided for. It seems that enterprise was offering some sort of surprise here, and why have you chosen not to provide OpEx guidance for the third quarter, as what has been customary in the past?

Yeah. If you look at the cost in the second quarter on the guidance that we gave for the mobile networks part, it's not so far off. But we had some additional investments in the R&D side there, and then we had higher costs on the enterprise side, where, as I mentioned, we have stopped capitalizing R&D. That is around SEK1 billion on an annual basis. We started that already in Q1. So that continues for the rest of the year. We also have higher costs and investments connected to some of the market exits, but also to increase the operational efficiency. That is building some cost in the enterprise part. The big deviation here in Q2 is more connected to that. We took out the seasonality because we see it doesn't apply here. We see more of a stable cost development compared to the first half of this year.

Okay, thanks. And I would have a follow-up on IPR licensing guidance. I mean, if we do the math, you're basically already at SEK13 billion for the full year, if the run rate amounts to SEK12 billion, as you've earlier discussed. So, why have you chosen not to raise the IPR licensing guidance? You did mention that there is still a possibility for additional deals.

Yes, we aim to get the best economic outcome of any agreements that we are working on. Therefore we keep the guidance now for the SEK12 billion to SEK13 billion for the full year. If there is more to come, then we will announce that.

Okay. Thank you.

Super. Thanks for the question, Sami. Just as a clarification in terms of the base, think about the H2 in terms of overall OpEx, when we talk about similar sort of levels rather than single quarter. Just to clarify on that, in case it's helpful. Super. Ready to move to the next question, that's going to come from Joseph Zhou at Barclays. Joe, your line is now open. Thank you.

Hi. Thank you for taking my questions. My first one is on the gross margin for network business, and it's at a good level. If I look at the business historically, only in 2021, you had a kind of higher gross margin at around 47%. You're guiding to 45% to 47% for Q3; is it as good as it gets in the second half considering we're not going back to that level of volume?

Yeah, no, it's a good question. We are quite happy with the margins that we saw now and also what we're trying to guide for here. It is good levels, as you say; whether it's as good as it gets, we are continuously working to improve, but it is reaching a good high level now.

You should think about where we are going as an industry. You will see less hardware and more software. As you think about the longer term, the product mix hasn't changed dramatically now, but that's going to look different as we move forward.

That's very clear. Thank you. My small follow-up is just on IPR. Can I assume it's with a Chinese smartphone maker that you probably didn't have a 4G or 5G license with? Is that fair to assume?

We normally don't disclose these kinds of contracts, but we will see if there is, but normally we do not share who we sign contracts with.

Okay. Thank you.

Thanks for the question, Joe. We'll move to the next question. The next question is going to come from Felix Henriksson from Nordea. Felix, your line should now be open.

Hi. Thanks for taking my question. I wanted to touch on the game plan for Vonage and the global communications platform. You now have the write-down under your belt, organic growth being negative and the business is loss-making. Just wanted to hear your thoughts about the timeline. When do you need to achieve profitable growth in this business area to be somewhat satisfied with the acquisition here?

Super. Lars, do you want to start with any financial comments, albeit probably limited on our side, but and then Borje, we can talk a little bit about the strategic rationale as well.

We're continuously working on managing the current business and improving that, which will require a return to growth. There have been decisions to step out of some of the low-margin deals we have had and get back to a more profitable growth, especially in the global communication platform part, whereas enterprise wireless solutions are full steam ahead to capture the opportunities there. That is clearly in the targets. I won’t give you a timeline today on that, but that is what we are working on.

If we start on the global network platform, it falls down in two buckets: the strategic reason why we acquired Vonage and that's what we're actually investing in. We need to manage the existing business better than we have; that's for sure. But we have also seen a decline in growth rates that we didn't expect or plan for. That's what you see on the current performance. We're trying to build a new marketplace for network APIs, which will require some more time before you see contributions to the P&L. We need to run the business better than we have. On enterprise wireless solutions, it's full steam ahead. We're seeing some interesting customer wins. We are working on two emerging opportunities here, and as we drive the cellular technology for new applications, that’s key.

Great. Thanks for the question, Felix. We will move on to the next question. The next question will come from the line of Janardan Menon at Jefferies. Your line is now open. Please go ahead.

Hi. Good morning and thanks for taking the question. One question and a short follow-up. The question is on the Q3 gross margin in networks, again on the 45% to 47%. I'm just wondering what the specific upward drivers of that gross margin are, because I would calculate roughly between 100 and 200 basis points of IPR impact, which you're guiding that you will cover in the current quarter. So, is that coming from a better mix because of more US revenue versus lower margin revenue, or is it coming from further cost reduction?

Thanks, Janardan. So, Lars, first on the margin drivers into Q3.

You have done the calculations, so I'd say we had a bit of positive impact in Q2. So, taking that off shows a bit of an underlying improvement, and we have the cost-out activities that we expect to support. We also have a bit of a geographical mix, as you mentioned. So, you're capturing it rather well in that sense. But we still have a declining market compared to last year.

It's still a bit too early to have a view on what's going to happen in Europe. We saw legislation being passed or announced. I think we'll have to see how that impacts the market.

Thanks very much. Borje, I want to go back to Vonage, and given the further write-downs, which are now over SEK4 billion, I want to ask you, who's ultimately accountable for this level of value destruction and sort of what conclusions should investors draw that management has learned lessons from this level of losses, which is really the largest we've seen since shortly after you arrived in 2017. Alongside that with Lars, do you need to adjust your EBITA targets, given that they had been changed from EBIT to EBITA to include the larger amortization post-Vonage, and now you'll obviously have much lower amortization?

It's clearly, I'm accountable as CEO, no choice about that. But I think you should hold your horses a bit before you assess this overall transaction until we know if we can create a separate new market for network APIs. Maybe we haven't delivered on the current performance of the existing business; take that. We need to improve that.

We will have less to amortize, but as it does not impact EBITA, it will not impact the EBITA level as such. There will be somewhat lower amortization going forward. I think that's also part of the outlook guidance we give.

Great. Thanks for the question, Richard. We will move to our final question today. So, the final question today is coming from the line of Didier Scemama at Bank of America. Didier, your line should now be open. Please go ahead.

Yes. Good morning, Daniel. Thank you for taking my question. Just a quick one. It's on this comment you made on increased Chinese competition. Should we conclude from your commentary and the guidance you've given on revenue and margins that you're happy to give up market share to protect your gross margins? Are you prepared to provide vendor financing in those emerging markets as we've seen in the past, given the FX headwinds that some of your customers are facing?

The situation is very much dependent on the customer's circumstances and their choices. Ultimately, customers need to decide on their vendor balance and the associated risk profiles. Therefore, it's challenging to provide a one-size-fits-all answer. However, we recognize the necessity of maintaining a healthy gross profit to invest in our technology leadership. If this necessitates us being more disciplined, we will continue to manage our gross profit effectively.

Brilliant. Thank you. May I ask a follow-up?

If it's very brief Didier, we're just about out of time, but please go ahead.

Very brief. Your main competitor in Europe just acquired an optical vendor to have a bigger footprint in data centers and AI. I know it's not your focus. How should we think about Ericsson's role, if any, in data centers in the future?

I think that's a market we serve through access technology. It's unlikely we will directly sell to data centers.

Brilliant. Enjoy your summer.

Thank you. You too.

That concludes today's conference call. Thanks, everyone, for joining, and we'll catch up after the summer.