Ericsson

Hello, everyone, and welcome to today's call covering the Q1 result in 2022. With me here in the studio in Kista, Stockholm, I have our CFO, Carl Melander. And on the link from New York, I have our CEO, Börje Ekholm. So as usual, we'll end this presentation with a Q&A session. And in order to ask questions, you can join the conference by phone. More details around that will be found on our website ericsson.com slash investors. So I will start with this message. During today's presentation, we will be making forward-looking statements. These statements are based on our current expectations and certain planning assumptions, which are subject to risk and uncertainties. The actual result made different material 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. With that said, I would like to hand over to our President and CEO Börje Ekholm. So please, Börje, you can start.

Thank you, Peter, and good morning, everyone. And a big thank you to all of you for joining us. I'm very pleased to present a solid quarter. We continue to see good results from our strategy execution, both within our core mobile infrastructure business, but also as we expand into the enterprise space. But before I go into the details of the quarter, I'd like to point out some new products we actually have released. interleaved air 3218 and radio 4490 that you can see on the screen these products form part of our leading 5g portfolio which has is really at the core of our success so let me begin with some of the quarters key events and of course i have to start with the invasion of ukraine by russia and the continued aggression That marks a significant setback for the world. I'm really heartbroken by the consequences for those directly impacted. The war is devastating for our whole society. After the invasion in February, we realized that our business in Russia could not be sustained, and we suspended all deliveries to Russia already at that point in time. Over the weekend, the exemption for public telecom networks has been removed from the EU sanctions. So on Monday, we announced that we have suspended our affected business in Russia indefinitely. This is a complex matter, as telecommunication networks are part of the critical infrastructure. And as you know, many Western governments have pointed out the importance of maintaining internet access and the flow of information for the people of Russia. So we will monitor the situation closely. We will continue to engage with the authorities as we suspend our business in Russia indefinitely in an orderly fashion. We have recorded a provision related to Russia for the impairment of assets and other extraordinary costs of 900 million in the first quarter. From an overall business perspective, we continue to execute on our strategy and we see strong business momentum with continued share gains. In the quarter, we saw organic sales growth of 3%. As you already well know, the situation regarding the global supply chain is challenging. But to ensure that we can deliver, we've made proactive investments in buffer inventory, among other things. But we're also investing in diversifying our supplier base due to the geopolitical environment we're in, and that's an environment that we foresee to continue for quite some time. This diversification drives, of course, some short-term costs, but it also establishes greater resiliency in the company as it improves our ability to deliver to our customers. And the actions we've taken have allowed us to deliver on our customer commitments during the quarter. We simply see that lost sales cost more longer term than carrying excess inventory a few quarters. We have also continued to invest in R&D to strengthen our market position. And that will allow us to gain share. And we've seen that in this quarter again. But we were also endorsed, and I think that's important, by Gartner, who named us the leader of 5G network infrastructure in their magic quadrant. We're focusing our increase in R&D investments to maintain a strong competitive position. We're investing in Cloud Run, Next Generation ASICs, as well as our cloud-native core portfolio and service orchestrations. These investments in R&D will generate a strong return longer term, But it, of course, impacts the profitability short term as they are not yet revenue generating. Gross margin came in at 42.3%. Underlying business performance is solid as the gross margin includes the effect of one large software contract that normally is recorded in Q1, but this year was pushed into Q2. The effect of this contract is about 0.9 billion Swedish kronor. The software contract pushed into Q2 impacted also networks gross margin, which reached 44.7%. And the impact of this software contract is 0.9 billion on gross margin in networks as well. In digital services, we saw encouraging sales development in the cloud native 5G core portfolio with double digit growth. However, we're not satisfied with the overall result in the quarter. We need to improve faster and we increase focus on accelerating sales growth and addressing efficiency to improve profitability. Our EBITDA margin for the group was 11%, excluding a fair market revaluation and the provision related to Russia. In the quarter, we also received communication from the DOJ about the breach notice related to our DPA, and we're currently engaging with the DOJ about this matter. What I can say now is that it's our assessment that the resolution will likely result in monetary and other measures. However, the magnitudes of these cannot at this time be reliably estimated. As this process is ongoing, we remain limited in what we can say about the historical events covered in the Iraq investigation and related matters. Let me now turn to the customer and market side of our business, where we continue to see a very good momentum. As we are now hopefully starting to transition out of the pandemic, I'm also happy to start interacting more face-to-face with our customers. And you know that what gives energy in this job is actually meeting both our people, but also the customers. That's a great way to see what happens in the business and drive our own improvements. And now we're getting back to that more business as usual. And we continue to see good momentum in our interaction with customers. Overall sales growth in Southeast Asia, Oceania and India decreased by 17% year over year. That was due to timing of orders and project milestones. We saw very strong continued momentum in North America, where sales were up 9% year over year, driven by continued very high demand for 5G solutions across all segments. And the U.S. customers continue to be at the forefront of 5G deployment. So, for example, we see customers indicating good traction in fixed wireless access as a new use case. Sales in Northeast Asia declined by 20% year over year, primarily as a result of project timing in Japan. However, we continue to see good opportunities in Japan, which is a highly developed market with dense networks and high demands on capacity. I would here like to point out that the increased sales in mainland China, and this is driven by timing of orders there. In Middle East and Africa, sales decreased by 9%. This was due to lower investments in 5G in the Middle East and was partly compensated or partly offset by growth in Africa. Overall, we're seeing encouraging momentum in the African market. And finally, in Europe and Latin America, sales increased by 15%, with Europe seeing an 18% increase. And this strong development was driven by networks as a result of continued market share gains. And it's great to see that we're now back to strong growth in Europe. Let me talk a bit about our strategy execution. Our core business remains strong. to extend our leadership in mobile networks. An example here is our massive MIMO portfolio that has proven to be highly competitive.

I think we lost Börje here for a few minutes to see if we can reconnect here with Börje. As I said in the beginning here, Börje is on a link directly from New York, clearly that creates some challenges here. But let's see if we can reconnect with Börje in a few seconds here.