Ericsson Lm Telephone Co (ERIXF) Q2 2026 Earnings Call Transcript

Hello, everyone, and welcome to the presentation of Ericsson's second quarter 2026 results. Joining us today, we have Biria Ekholm, our president and CEO, and Per Narviga, head of networks, who will be assuming the CEO role in October. And a little later, Lars Sandstrom, our chief financial officer, will also join us. 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 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 Burja and to Per for some introductory comments.

Thanks Daniel and good morning everyone and thanks for joining us today. But before we get into the quarter I wanted to take a moment to talk about the leadership transition we announced in June. So after almost 10 years as CEO of Ericsson and actually 20 years as a member of the board, this will be my last quarterly results call. Since I stepped into the role in 2017, we've transformed Ericsson into a leader in our industry. I will always be proud of the progress Team Ericsson has made in strengthening our technology leadership, improving our operational execution and positioning us for long-term success now that AI actually moves into the physical world which I think will provide us with a lot of growth opportunities going forward. I also want to express my gratitude to the board, the leadership team and all the colleagues in Team Ericsson. It's really the quality of our people that defines our success. it's been a privilege and honor to be a team member of Team Ericsson for the last almost 10 years. I'm also pleased to report to Solid Q2, where we continue to execute against our operational and strategic priorities. We remain focused on serving our customers, strengthening our technology leadership, and driving disciplined execution across our business. But before going into some key takeaways from the quarter, I'd like to introduce Per Narvinger, who will be succeeding me as CEO, as Daniel said, and you all know, and he can join me today. Per has spent almost 30 years at Ericsson and brings a broad experience across the telco industry, but he's been in research, standardization, development, product management and sales. he's led some of ericsson's most important businesses most recently of course networks but before that leading the turnaround of cloud software and services so i've had the privilege to work very closely with per for many years now and i've seen firsthand his deep understanding of our technology our customers and our industry but what has actually impressed me is really his ability to execute and yes you can rest assured he consistently delivers on what he says he will do

so simply put he's an excellent choice to lead ericsson into the next chapter so over the next two three months per and i will spend a lot of time together working closely to ensure a smooth transition but please per i leave the word over to you thank you börja and it's of course a great honor to take over as the ceo of the company from october 1st as burja says i have been in the company in the industry for quite a few years i truly enjoyed being back in the network's business where i spent a lot of my career so i was heading up the larger segment now for a year and a half i have to say buddy you handed me quite a challenge when we formed cloud software and services it's great to see that that business is now progressing i also think we are at a very interesting point in time now with the ai really coming in in a big way of course how we build our products how we deliver to our customers and of course all the traffic we're gonna see on ai in our networks and i also have to say a big big thank you to uber you're handing over a company in a very strong position strong on the market position strong in the portfolio and it's truly been a privilege working with you and great fun as well and of course you and I will now meet a lot of customer partners to make sure we have a smooth transition here and then of course I'm looking

forward also to engaging with everyone in this forum going forward so yeah thank you yeah you'll have a lot of exciting quarterly calls ahead of you but thank you Per so Per of course has been part of of my leadership team for many years but i think it's fair to give him some time to chart out the strategy for the future so he will not take part of the q a today and and therefore save your questions for the future quarterly reports when when when he can talk much more about the future but now let's look at today's results i would say overall we executed well in in the second quarter and we saw continued strong margin delivery looking at the top line we saw a one percent organic decline but underlying it's actually a slight growth if we adjust for the back royalty portion of the ipr settlement last year gross margin came in at 48 which is actually up two percentage points if we exclude the benefit from the one of ipr settlement last year EBITDA margin came in at 13.1%, which is in line with last year's results. All in all, these results demonstrate the strength of our portfolio, our disciplined execution, and how we strengthen the company operationally. The actions we've taken over the recent years have made Ericsson much more resilient and is actually enabling us to sustain healthy margins in varying market conditions. The external environment continues to be rather challenging as the AI boom is driving up component costs. So we are taking, I would say, two sorts of actions to mitigate this. First, we do some near-term adjustments, accelerating costs out, but we're also increasing sales with product substitutions or sales of additional products. but we're also started to take longer term structural actions which of course include raising prices where appropriate of course first step is to adjust on new tenders but we're also implementing price increasing increases with current customers so discussions to broader broader price increases are ongoing and we're also redesigning products but all of these actions will help us mitigate longer-term effects from component inflation. While we're not immune to these external factors, we're in a strong position strategically and operationally. And to make sure that we keep this position, we're continuing to strengthen our technology leadership in our core mobile networks business. This includes continued R&D investments in our leading high-performing programmable networks. but building on our strong position in mobile networks we're also pursuing a number of growth initiatives of course this includes what we do on enterprise with enterprise connectivity our api business network powered solutions but also the growth opportunities in mission critical networks and different defense applications and here we continue to see good progress our strategy over the last few years has focused on positioning us for the next phase of AI adoption or the AI race and that is when AI moves into the industrial and physical world in this world connectivity will be more important and uplink will dimension mobile networks but we will also see increasing demand of low latency and actually this is what 5G was designed for. So I would say Ericsson today is well positioned to capture this next wave of AI driven connectivity. With this I'd like to leave the word over to Lars to go through some of the numbers more in detail.

All right thank you Berger. I will begin with some additional comments on the group before moving on to the segments. If you look at net sales in Q2 they totaled 52.7 billion with organic sales declining 1% year-on-year. Excluding the one-off IPR settlement in Q2 2025, organic sales grew by 1%. Sales in all market areas grew with the exception of Americas, which reported a slight decline of 1%. In Americas, sales grew in Latin America, but were lower in North America, reflecting strong deliveries in the prior year period. in the other market areas sales were driven by japan india the middle east and africa network sales declined in two of the four market areas network sales grew in northeast asia driven by japan and southeast asia oceania and india driven by timing of deliveries in southeast asia europe declined due to the completion of modernization projects in some markets while Middle East and Africa grew. North America declined, partly offset by higher sales in Latin America. For cloud software and services, they grew in all market areas. Enterprise delivered its third quarter of organic growth. Reported sales decreased by 6%, impacted by a negative currency effect of 1.8 billion. IPR revenues were 3.4 billion down by 1.5 billion year over year. This was mainly due to the one of settlement in Q2 2025. The current IPR run rate is approximately 13.5 billion including the agreements signed in July 2026 which will benefit from Q3. Adjusted gross income was 25.5 billion with a negative currency impact of 0.8 billion adjusted gross margin was 48.4 percent a slight increase from last year with improvements in networks and cloud software and services on the cost side operating expenses excluding restructuring charges dropped to 19 billion around 1 billion lower year over year driven by cost reductions currency as well as the divestment of iConnective. Wage pressures continued to be offset by cost reductions driven by headcount as well as efficiency measures. And there was limited financial impact in Q2 from the component prices helped by our resilient supply chain. The EBITDA margin was 13.1% in line with last year An adjusted EBITDA was 6.9 billion, down by 0.5 billion. EBITDA was impacted by a negative currency effect of 0.6 billion. Q2 2025 also benefited from the IPR settlement and included iConnective. Excluding these, adjusted EBITDA would have improved by 1.8 billion. cash flow before M&A was 0.4 billion driven by earnings and impacted by higher inventories i will come back to this later so let's move to the segments in networks reported sales decreased by 8 percent year on year to 33 billion with a negative currency impact of 1.2 billion Organic sales decreased by 4%, mainly reflecting IPR one-offs last year. Organic sales grew in Northeast Asia and Southeast Asia, Oceania and India, while sales declined in Europe, Middle East and Africa and Americas. Networks adjusted gross margin was 50.4%, stable compared to last quarter, and adjusted gross income decreased to 16.6 billion due to the lower sales and the negative currency impact. Adjusted EBITDA was 5.8 billion down from 6.5 billion last year mainly impacted by a negative currency effect of 0.5 billion. Adjusted EBITDA margin was 17.7 percent down slightly year on year and this was partly due to the IPR one-off in Q2 last year and partly due to lower sales including the negative fx impact moving to segment cloud software and services reported sales increased by three percent to 14.7 billion including a negative currency impact of 0.4 billion organically sales grew by five percent with growth in all market areas and growth was broad based across the commodities adjusted gross margin came in at 44.1 percent an improvement from 43.2 last year supported by improved delivery efficiency adjusted gross income increased to 6.5 billion adjusted EBITDA increased to 1.8 billion with a margin of 14.2 percent lower operating expenses benefited from efficiencies and currency and looking at the right-hand graph the rolling four-quarter adjusted gross margin was around 44% and adjusted EBITDA margin around 13% a new high level then going to enterprise reported sales decreased by 19% impacted by the sale of iConnective and currency on an organic basis enterprise grew by 3 percent with growth in global communications platform and enterprise wireless solutions adjusted gross margin declined to 50.9 percent reflecting the impact of the divestment of i-connective and the change in product mix adjusted beta landed at minus 0.8 billion where the impact of the divestment of i-connective was partly offset by cost reductions ebitda improved compared to q1 benefiting from lower operating expenses q1 was also impacted by some small negative one-offs turning to free cash flow which was 0.4 billion before mna in the quarter cash flow generation was supported by earnings but impacted by increased operating net assets mainly inventories as you might remember we had a very strong q1 due to a stronger than normal seasonal reduction in operating net assets. And in Q2, we had a build-up in inventories, in part preparing for planned Q3 delivery. We delivered a cash flow to net sales of 12% for the rolling four quarters at the upper end of our 9-12% target. Net cash decreased sequentially by 8.3 billion to 59.8 billion, reflecting dividend payments and share repurchase. Next, I will cover the outlook. Global uncertainty remains elevated given the broad geopolitical and macroeconomic environment, including the global semiconductor situation. As mentioned last quarter, we are not immune to these disturbances. As a matter of fact, input costs increase further in Q2. The financial impact from this will start to build up gradually in the coming quarters. We are taking near-term actions across the businesses, including commercial measures, for example product substitution, as well as supply chain actions and targeted cost initiatives. At the same time we are starting to implement longer-term structural actions that will be needed to more sustainably offset these impacts we are adjusting pricing in current tenders and discussions to broaden price increases with current customers are continuing as already mentioned turning to the q3 outlook then the outlook assumes the exchange rate specified in the report and for networks we expect sales growth to be above the three year average quarter on quarter seasonality for cloud software and services we expect sales growth to be broadly similar to the three-year average quarter-on-quarter seasonality we expect networks adjusted gross margin to be in the range of 48 to 50 percent down slightly compared to q2 due to a change in mix we expect also a higher share of networks rollout projects in q3 restructuring charges for 2026 are expected to be at an elevated level with a fairly large part already seen in the first half with that i hand back to you thanks large so ericsson enters the

future from a position of strength with the external environment continuing to be challenging I'm very happy that Ericsson today is in a great spot and leading the industry in the AI era. The next phase of AI will require high-performing mobile connectivity to scale. We expect this to be a key driver for our industry over time. With our leading portfolio, Ericsson is well positioned to capitalize on this future and this future development. I believe this is an exciting time that can bring Ericsson back to growth. As this is my last earnings call as CEO of Ericsson, and possibly the last as a CEO, I'd like to thank all our customers. Ericsson has long believed that connectivity is a basic human need, and together with you, our customers and partners, we've continued to expand mobile connectivity and continue to create opportunities for people throughout the world. This is an amazing achievement and something we should all be really proud of. Finally, I'd like to give a big thank you to all my Ericsson colleagues. You are all the reason to why Ericsson today is leading the industry. You're truly amazing and have made these years so rewarding. Thank you, team. With this, I believe it's time to move on to some final, for me at least, Q&A.

Thanks, Burya. We'll move on to Q&A now with Burya and Lars. To ask a question, please could you press star 1 and 1 on your phone and wait for your name to be announced? If you're streaming the webcast, could we ask that you mute the audio on the webcast while asking a question to 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. Operator, we're ready for the first question. Thank you. The first question today is going to come from the line of Simon Granath at ABG. Please go ahead, Simon.

Successful career at Eriksanberga. Best of luck in the future. On to my question, which is a bit broader. I have been in detail tracking your mobility report and note that you have finally made some positive revisions on data traffic estimates after several years of downgrades. Could you give us your perspective of demand for RAN in light of this, balancing it with the introduction of uplink-related applications and also the fact that DeLauro still only expects the market to grow 1% per year for the foreseeable future? Is the latter conservative in your view? Thank you.

Yeah, thanks Simon, first of all. No, it's a good question. we're doing the revisions because what we are starting to see is a emerging demand for uplink that is you know we don't really i can't really point to exactly what type of applications it's a broad base it's really starting to see that that the demand for ai is starting to shape traffic that's why i think there is a there is an upside case here which will be much more positive for our industry when uplink becomes what dimensions the networks going forward but i so i i think there is a a real case to start to be a bit more optimistic about our industry and the ran market at the same time i want to also say we we when we plan and for our own planning perspective we like to think it is rather flattish because when the demand happens we we need to make sure that we have the right products the right cost structure and not kind of build on speculation in advance of that happening so when when you ask the question yes i'm i'm i'm personally very excited about that future but i want us also to be disciplined in the way we execute and the way we plan our cost structure and therefore we're cautious so i i think when you look out in a few years time it's going to be better to take this discussion you know the purchase decisions

ultimately will be in the hands of our customers but when they see the demand happening i i also think they will start to buy but but but you know until then let's continue to plan for a flattish market thank you so much thanks for the question simon moving to the next question please operator the next question is going to come from the line of eric lindholm roger style from scb please go ahead eric yes good morning uh thanks for taking my question um so i'll start with um perhaps a question on gpus in the radio units it's been a hot topic recently nvidia revealed its entry into this area and you obviously operate mainly on Ericsson Silicon, which is purpose-built. Can you elaborate a bit perhaps on the benefits and the possible risks of going with purpose-built and how capable do you think GPUs are as an option in radio units? Thanks.

I think first of all, it's actually in a way confirmation of the importance of AI in the RAN, that we start to see other players wanting to enter here with GPUs. So I think it kind of confirms what we have been talking about for quite some time that AI will be what drives the networks going forward. So we have picked a strategy of being, in that sense, agnostic from a hardware point of view. so we can run our RAN stack on so being an x86 or a GPU or our purpose-built silicon and you know when we look at what you need in the radio it's of course in reality very high performance, very energy efficient and it's a lot of calculations and a very demanding compute environment At the same time, it's actually not the need for very large models. So where this market is going to end up is always a bit uncertain. But we see a demand for that compute in the radio going forward that we can offer with a purpose built. But then, as I said, our RAN stack is agnostic. So we can be on what type of infrastructure ultimately wins. so it's it's actually not an either or question we are simply saying let's see where the market shapes up today there are clear performance benefits in the in the purpose built you see that on cost you see it on energy efficiency you see it on performance in field so there is no doubt there is room for the purpose built and then how it's going to look like over time you know we're not going to place the bets yet we're simply keeping that an open topic what I think is an important element in your comment is actually the deployment of AI in the RAN that is of course going to be really important and we are determined to lead you saw us announce at Mobile World Congress a couple of applications where we use AI in the radio as well. So I'm convinced we are at the beginning of that journey and we are determined to lead like we are today.

All right. Thank you. And good luck on your future endeavors, Bariya. Thank you.

Thanks for the question, Erik. Moving to the next question, please. The next question is going to come from the line of Sebastian Stabowitz at Kepler-Cheraux. Please go ahead, Sebastian. Your line's open.

Yeah. Hi, everyone, and thanks for taking my question. Could you please quantify the component cost inflation impact on your net world growth margin for this year? What do you expect in terms of impact? And regarding the price increase, what has been done already? Have you been already able to renegotiate some existing contracts with higher prices? Thanks a lot.

Thank Maybe Barry, starting with you with the discussions and then Lars, the final.

Yeah, I can take the latter part. Yes, we have done that. It's not impacting Q2, but it will gradually be visible, those type of renegotiations. Of course, I think it's also important to remember we have rather long-term contracts in the industry. so it you know when when you enter into these type of discussions you need to be thoughtful as well so it takes a bit of time but we where we have done it we're we're actually seeing that customers also understand that we need to find ways to share the the burden of the industry if this industry will be competitive going forward so i i actually think we we have the opportunity ahead of us here to do more and we of course take all the other actions product substitutions make sure that we design products in a call it a way that minimizes the cost inflation so we're trying to do all these I think we're not going to be immune we weren't immune from tariffs either about a little more than a year ago but you also know that it didn't at the end of the day impact can't guarantee that now but i think we we see a lot of mitigating actions that will help us position as well for the future but maybe you want to take the details i think when it comes to the cost impact we don't share that kind of details but as we said already coming out of q1 we will see gradual impact during the second half and into to next year and we are

doing mitigation activities already now so how big the impact will be depends on a little bit the phasing of the cost increases that are coming and the phasing on the mitigating activities we can do quite a bit in short term but then in the longer term it's really about how it's we cannot take this all alone it's really on what we can do together with customers here and to really ensure we get the best performing solution to the customers but also at the right price point okay thank you and congrats for all your career at Eriksson thank you thanks for the question Sebastian, moving to the next question please, the next question is going to come

from the line of Andreas Jolson at DNB, please go ahead Andreas thank you good morning everyone, first of all Barrier, congratulations and also I know you will miss these calls tremendously but we're only a phone call away if you want further questions and secondly further on the the gross margin and and the other side of the equation uh the the volumes that you see will increase going forward how how should we see those rollout projects will they be uh for longer and therefore have an impact on the gross margin for longer what's the pattern usually usually look like in in situations like this thanks

uh thanks andreas yeah i will i will truly miss the questions and uh you know but i i try to fill my time with something else instead so i'll figure out if it's equally rewarding let's put it that way um that will be hard to beat um but anyhow it's it's a good question you know when there isn't really a typical project to be honest but if you want to kind of generalize a bit what we see in rollout projects is the first few quarters tend to be the most challenging and after that it gradually recovers to be quite good after a period of time that's what we have seen every time we have those type of contracts then the exactly how the impact is varies sometimes you the initial is actually negative sometimes it's just less positive below group average margin so to say but but it's not that we take contracts which are you know we're very disciplined in taking contracts that are i call them accretive over time that means it's challenging in the beginning but better over time so so um you know we don't guide per se on on margins a year out right so that's on on that purpose so that's why we guide per quarter and we see this impact in the third quarter of course you also should expect bigger volumes so when you look at the numbers you have to play a little bit yourself there but but it's uh i feel quite good about the volume and then it will be a bit more challenging short-term on margins perfect thanks a lot Thanks for the question, Andreas.

Moving to the next question, please. Next question will come from the line of Richard Kramer-Arate. Please go ahead, Richard.

Thanks. And Bory, I'm not sure you're going to miss this question. But if we just focus on measures of shareholder value creation, I'm sure you'd benchmark yourself against really the leading global tech companies. And since 2017, Ericsson's underperformed the NASDAQ 100 by 67 percent and also underperformed common quipment indices. And you've taken 30 billion kroner of restructuring charges and about 60 billion kroner of write-offs. Given Ericsson's continued reliance now on telcos for the vast majority of sales, Do you think you could have been bolder in efforts to shift focus, for example, towards the massive investment boom we see happening now in data center builds? And is there anything you think in terms of the strategy you might adjust so that you could tap into this huge wave of spending?

No, I think it's a great question, Richard. And for sure, it's a relevant question. Fair to ask. uh i i think we have elected to be in a different part of the of the value chain for ai and and really where where you see the big performance elsewhere is actually ai driven i think the next phase of ai is actually going to benefit our industry quite substantially so i i think it's a bit too early to to decide where we are on that journey when you're kind of before really rolling out AI into the mass applications. So do I think we could have done differently? Yeah, for sure we could have. So that is, any other answer would be, I think, inaccurate. So that we could for sure have done. But I think we're also done what we can to position the strength of Ericsson in the best possible way where the market will be in the future and we are convinced that we will see ai move into distributed applications call it it's going to be anything from of course glasses it's going to be humanoids it's going to be robots and when you start to see that you will demand mobile connectivity and you will start to demand high performance mobile connectivity with solid indoor coverage and with high up links that's where we exactly have invested so let's see where the the physical AI develops in the future that's when I think you'll see where where we have a chance to to outperform and that's what we try to position ourselves for Okay, thanks, and good luck.

Thank you.

Thanks for the question. Richard, moving to the next question, please. The next question is going to come from the line of Francois Bovigny from UBS. Please go ahead, Francois. Your line is open.

Thank you very much, and good luck for Borghi as well. Just a quick question on the gross margin again. I think you mentioned in Q3 that you will have a mixed rollout impact on the gross margin, And I thought in the past that you did actually very good work on the mixed side, rollout versus non-rollout, that the gross margin actually is not that impactful. We have seen that during AT&T rollout phase. We didn't see much impact there. So why is it different this time that the rollout is dilutive again, at least on the gross margin side? And as we look into your price actions or maybe your component costs, can you give more details on how much is the pressure on your cost that we see happening? And is it fair to say that this pressure is more from Q4 onwards because Q3, you don't talk about inflation impact. It's more the rollout mix.

Thank you. Sure. I can just start on the rollout question. The reality is that we're in the project business, it shifts a bit all the time, right? It's a bit larger portion of rollout projects during Q3 that impacts margins. So that's what we're guiding for. And that will periodically happen. I think when you look at our track record over time, as you note it's you know we've been able to manage across geographic mix that that's actually been our focus to reduce the dependence on geographic mix but we have always said we have a mixed dependence on products so of course it's very different if we sell software versus if we sell services for a rollout project that's going to be different and that's what you see impacting q3 so it's it's actually less geographic dependence that we've taken away but the product dependent and product mix dependence that we will not be able to take away because it's simply lower

margin structurally on services than it is on software yeah and on the i think when it comes to impact from from cost we will see some already in q2 but as we said there on the mitigating activities we see that those will we will have those supporting offsetting that during the the third quarter then it's a bit it is an increase in cost pressure that we have so that will of course have put a bit pressure more going coming out of the year and into next year and there the activities that we are doing will take a bit the short term they will work with and the longer terms that we will see how that plays out it's really on the discussions that we have in

negotiations that we will have towards customers as well so that's why it's a bit different in the phasing thank you very much thanks francois moving to the next question please next question is going to come from the line of jacob bluestone at bnp please go ahead jacob thank you daniel and congrats and best wishes to barrio as well um just to stay from the topic of the the memory cost inflation.

Can you maybe just explain to us what is actually the mechanism in your current contracts passing on price inflation? So do you have automatic pass-through or do you have to go back and renegotiate every contract individually just to help us understand what's actually in your current contracts?

We've been very clear on this over time, Jacob, that we don't have automatic pass-throughs and and the reason why our contracts are not designed that way is is actually that they are rather long term and you know there there are not a just because the contract is long term doesn't mean it's exactly the same products being shipped the whole time so it would simply not be workable to have those type of adjustments in there so that's why the contracts don't typically not include that some do but that's typically very small and much shorter term contracts so so there is nothing automatically in this that's why we talk about the mitigating actions and you see us take that on on the cost side we take it on product substitution we take it on new product introduction and we of course take it on price increases some part is renegotiation we've done that successfully already we know it can be done so we're going to continue with that we also change the prices of course in tenders we enter into so overall you know we're not immune even though we don't have it written into the contract but we also know that we're able to to mitigate the large part by taking those type of actions is it easy No, it's not. But it shows also our performance that it actually can be done.

Understood.

Thank you and best wishes.

Thanks for the question, Jacob. Moving to the next question, please. The next question is going to come from the line of Daniel Joberg at Handelsbanken. Please go ahead, Daniel.

Thank you, Daniel. And good morning, Börje and Lars. And Börje, thanks for a great contribution and all good meetings during the years. and if you really miss the wrong discussions you're always welcome back to Edsbruck where I have a newly refurbished apartment available. Nevertheless, I would like to ask on the network gross margin and the guidance here 48-50 which in my view wouldn't be a bad number given what you talked about here on rollouts and on the price inflation and so on. But we also know that you have some kind of IPR catch-up from Transion here in Q3. So I guess some of the uncertainties today is based on this. How is this impacting this guidance? So should we be even more conservative after this or given that there is some impact from Transion in this?

Not to comment explicitly on Transion, Daniel, but I would say it's a marginal impact from that so that has not been assumed to be a positive contributor during Q3 and it all, you know, these type of contracts on the IPR depends on exactly how they look like I think the key here is the agreement we strike kind of increases the value so we're at 13.5 billion run rate now So that's the most important part. It positions the value of our IPR portfolio for the future. But the contribution is actually marginal during Q3. Otherwise, I may take you up on a coffee in Edsbruck. Yeah, that's great. Always welcome. Thank you.

Thanks for the question, Daniel. Moving to the next question, please. The next question is going to come from the line of Sandeep Deshpandy at J.P. Morgan. Please go ahead, Sandeep.

Yeah, hi. Thank you for letting me on. And all the best for your future endeavors, Aburhead. Just a quick question on the enterprise business of Ericsson. I mean, over the last five years, this business has consistently been loss-making. Is there a time horizon over which the intention of companies to make this business profitable? Because it has on average been 10% impact on your EBITDA reported for the year. So it has been a consistent negative. So will this change in the next few years?

It will. The answer to Sandeep is, of course, it cannot be consistently loss making. instead it has to be value accretive to the group and we clearly have a plan in place that we're executing upon it comes from a couple of elements and you already now start to see our wireless one business to to actually contribute not to reported numbers but the way we we see sales growth on bookings etc it's actually quite positive the challenge in in enterprise has been the enterprise the quality the the private networks where we've actually not had a attractive neither growth nor profitability so that is something we're working to address and starting to see progress on that you all know the the business of vonage has not been contributing we put in place a plan to to change the trajectory of that business that we're executing upon it will take a little bit more time but you will start to see improved performance in the reported numbers you've seen it from q1 to q2 and you see it and continuing throughout the year. So clearly, the ambition is here to turn this around and make it value accreting in the view. I'm not going to put a timeline on it as I'm not the one to deliver on it. So it feels a bit unfair to do. But I would say the plan is in place and we're executing on that. And over time, it should be value creative. Thank you, Boris.

Thanks, Sandeep. Moving to the next question, please. The next question is going to come from the line of Sami Sarkemedes at Danske Bank. Please go ahead, Sami, your line's open.

Thanks. First of all, I want to thank Beria for good cooperation over the years. I think you can be proud of the achieved margin turnaround during the past 10 years. Just curious, what do you think will be the biggest challenges or questions your successor will need to address going forward?

Thanks, Ami. I think it's a bit unfair to my successor to put something on his table. But what we have been focused on the last few years is that we have recognized that the core business, the core mobile networks business in reality is a flattish market. and to get into growth which i actually think is is is critical for long-term value creation of a company is actually to find new use cases of our technology we've done that in trying to do that in enterprise we're not there yet we've tried in or or actually doing it in mission critical including defense and there we're starting to see that it contributes to overall growth so when we look at this I think the one thing which now I'm answering this much more from what we have actually been focusing on the past few years is to drive growth into the company without being in that sense pursuing a number of initiatives and from a blue sky thinking so we've rather tried to be disciplined in the way we enter areas, trying to invest to capture that potential and trying to grow, trying to get into growth. And I think that's where the next step of the journey is. I'm actually a big believer that AI will move into the physical world. And when that happens, we're going to be very well positioned with the initiatives we have taken. But I am sure that my successor will take new initiatives and ideas and change some to capture this potential. So I think there are a lot of opportunities, not saying it's easy, but it's a lot of opportunities where we can capitalize on our position.

Thanks. Thanks for the question, Sami. Moving to the next question, please, which will come from the line of Felix Hendrickson at Nordea. Please go ahead, Felix.

Thanks for taking my question. And again, congrats and all the best for the future, Berje. My question is on the inventory. You tied up around 4.6 billion in inventory during the quad. So I was just wondering if you could dissect this a little bit. How much of this is sort of attributed to the memory cost inflation and how much it's attributed to, you know, a sort of strong sales quarter you see in Q3 relating to the timing of deliveries? I think in the IR chats in the morning, there was some discussion about delayed deliveries from Q2 to Q3. So if you could just unpack the inventory buildup a little bit and how we should read into it.

Yeah, but when you look at the inventory buildup here, it's around 5 billion in the quarter. And the majority of that is, so to say, finished goods that is then to be delivered in Q3 and going forward on this phasing, as you mentioned. and there is but there is also a portion of that connected to the higher component cost that we see coming in so but it's not the majority it is a smaller part of the the five billion that is connected to the component cost increases and and this will continue a bit so that would be the challenge going forward here to really address the working capital and the capital turnover rate here in the coming quarters but it's important also that we have the right levels

here so we have ability to deliver on time to our customers and the commitments we have with our customers thanks for the question felix moving to the next question please next question is going to come from the line of janadin menon jeffries please go ahead janinin hi good morning thanks for taking the question, and congratulations, Bori, from my side as well.

I think you've done a great job on the profitability side. The company you inherited was struggling with profitability, and now the company is maintaining consistently high levels of gross margins on the network side. My question is really on the competitive dynamics of your mitigation aspects. When you are redesigning products to account for higher component prices or you're increasing prices, are you seeing similar kind of an approach from your competitors? And that's both your Chinese competitors who are able to possibly source components like DRAM at an easier level or lower prices from Chinese vendors than you can? And are you seeing any competitive effect from these actions which could have an impact on your market share?

I think you actually make implicit in your question, General Dan, is actually an important part here. And there may be, as you say, a little bit lower cost inflation in the Chinese ecosystem. And as you know, we cannot rely on that ecosystem to export to a number of countries we're in. That forces us to look at the product design in a different way. We're seeing all vendors otherwise under some sort of similar cost inflation pressure. So we're not the only one going through this. What we are doing is of course spending maybe a little bit more effort on product design to actually optimize our products for the performance needed in order to balance component costs. This takes six, nine months to do, so it doesn't really come through in the short term, but longer term it will help us. and I expect everyone to do something similar. We're probably going to see that in other parts of the AI value chain as well, that companies do the same thing because it's simply a way to optimize performance and cost of your product. I don't think the vendors, whether they come from China or from elsewhere, are under any other way of operating. Understood. Thank you very much.

Thanks for the question, Janadan. Moving to the next question. The next question will come from the line of Stéphane Heroux at Odo. Please go ahead, Stéphane.

Yes, good morning. Actually, I wanted to speak about the cloud and software and services margin, where your margins went really above the expectations, you know, 12.4%. I just want to know how much of this improvement is structural, like cost reduction, efficiency mix, and how much is a one-off? And what is a reasonable run rate margin to expect going forward? Thank you.

Now, when it comes to cloud software and services, we try to emphasize the beta margin, since there can be a bit of volatility depending on the product mix in cloud software services we had a good quarter this quarter for sure but you also see the impact when we get a bit higher revenues that there is a leverage also supporting the margin here so it's a mix of the leverage and the product mix and it is as I said a good quarter here in Q2 and we have said that we are aiming for double-digit cloud software and services beta margin and we are there now and above and the task is for us to maintain and drive this going forward but there is also of course the connection with the RAND market demand it that is not it's not a separate life of that business of course so the challenge we see in the RAND market is also there for for the cloud software and services But having said that, we see some good progress in capturing a bit of growth here that we have seen over the, if you look more on the rolling base, it's actually been a bit better than the pure RAND market here. And we intend to keep focus on that going forward as well.

But it's fair to say there's no one-time effects that actually come into the quarter. It's kind of business as usual, to be honest. and at least the turnaround plan that was put in place several years ago on commercial discipline work on the cost side focus the product portfolio etc that's that that's giving the benefits here and and and you know sometimes there is a bit of lag until you see it in the numbers it's the same thing on the we discussed on the enterprise side a lot of the actions that have been taken the last you know one two years will we start to come through in the future and that's what you see on bcss it's a lot of the the actions taken a few years back that now is is building a solid base then then i you know we've said we need to be double digit margin that's been i think a minimum requirement uh quality decency level if you look at what what a business like this should be i've often said it should at least be you know mid-teens and above because that's that's the reality of the value we provide should warrant that then it takes time and not going to commit to a timing of reaching that but of course the ambition is to to make this a more profitable business than it is today but i i think it's it's it's the timing effect of action so when you take

them it takes a few quarters before you see it come through very clear thank you very much great thanks for the question stefan and i see we are just coming up on time so we will need to conclude today's conference call there um thanks for joining us thanks burja thanks and also to pair thanks everyone and good luck in your work