Ericsson

Hello everyone and welcome to the presentation of Ericsson's fourth quarter 2025 results. With me here in the studio today are Barry Ekholm, our President and CEO, and Lars Sandstrom, our Chief Financial Officer. As usual, we'll have a short presentation followed by Q&A, and in order to ask a question, you need to join the conference by phone. Details can be found in today's earning 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 risk 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 Birger and to Lars for their introductory comments.

Thanks Daniel. So good morning everyone and thanks for joining us today. It was a strong end of the year as we executed with discipline and made solid progress against our strategic priorities. We are building a more resilient Ericsson. We expanded EBITDA margins year on year for the ninth consecutive quarter. And we're getting closer to our long-term target of 15-18% EBITDA margin. And we ended the year with a net cash position of over 61 billion kronor. Our cost initiatives are just one component of our actions to structurally improve margins and cash flow. And you have seen that we have reduced the headcount, for example, by 5,000 over the past year. And we expect to continue reducing headcount going forward. And last week we announced some initiatives we're taking in Sweden as part of a global effort we do to keep cost efficiency in our business. With the operational improvements we've implemented over the past few years, they are now getting increasingly visible in the P&L, and we had another 48% gross margin quarter now in Q4. The EBITDA margin was 18%, both for the quarter and the full year, and that means that we are tracking very close to our long-term financial targets after normalizing for the about 3 percentage point benefit from the iConnective game. And now, going forward, we expect to see improving operating leverage as our top line accelerates that we could see in Q4. Now that the underlying demand environment for mobile networks remained actually flattish, but it is encouraging that we had an organic growth of 6% during Q4. And the reason for this is that over the past few years, we have invested in the number of growth opportunities and growth initiatives like 5G core, mission-critical networks, and enterprises. And I'll expand a bit more on this. In my view, we're actually entering a very exciting era of what we can call hyper-connectivity. So now we're starting to see everything being connected. I would say Ericsson is really well-placed for this paradigm shift. And I believe we have the right strategy to win. To date, AI investments have been focused on models, semiconductors, data centers, etc. For sure, these are really critical. But the real economic value will actually come in AI applications and devices. So think about drones, humanoids. could be connected glasses, XR glasses, could be instantaneous or simultaneous translation services. You have a number of these things. All these new type of use cases, AI use cases, will really change the nature of traffic with much more demand for uplink and low latency. And it has to be resilient and trusted. So When you think about this new world with AIs going into the physical world, if you call it that, kind of a physical AI, those applications and use cases will be distributed. But more importantly, they will also typically be mobile. So they will require advanced wireless connectivity. So best effort connectivity, Wi-Fi, 4G, and I would even say 5G non-standalone, will simply not be enough. Instead, we will require 5G standalone today, and then later on we'll require 6G. But this new world will also require better mid-bank coverage to get the right performance of the network. And I'll take just one example, and you see China having a 10x denser grid than the rest of the world. And I would say that's one of the reasons why many are saying China is a formidable competitor in AI today as they are moving into AI applications. So at this point in time, it's a very exciting time. Our strategy is to lead in mobile networks with high performance, autonomous and programmable networks that are 5G native. and at the same time scale this mobile platform to new areas like mission-critical enterprise solutions, but also providing tools to developers. So now let me go briefly through some of the progress we made against our strategic initiatives during the last year. Through our high-performing programmable and autonomous network, we're enabling our CSB customers to deliver differentiated performance and create new applications and use cases to monetize. And when you think about differentiated performance, it's actually creating dedicated performance for the application you have at hand. And during the year, we actually signed several key agreements with frontrunner customers like Telstra, Vodafone, but we also made critical inroads in the important Japanese market with all leading operators. These advanced networks that we're building together with frontrunner customers will be key to monetize and scale the AI opportunity. In parallel, we focused on scaling the mobile platform to new use cases and sectors, The most mature new use case is fixed wireless access that during 2025 actually reached 150 million global subscribers. And typically, and most often, they have better customer satisfaction than other access technologies like fiber, for example. And now, as you've heard me say earlier, we're also starting to see traction within mission-critical applications. And this, we think, is a key growth opportunity for us going forward. During 2025, we executed many new agreements in the public safety sector, and we're also targeting national security and defense operations. On the enterprise side, we're continuing to strengthen our position. The market for network API is actually starting to develop. In 2025, Vonage was first to offer aggregated access to network APIs across all three major US carriers. And these advanced APIs included advanced fraud detection, and we have significant customer interest today. Our joint venture, Aduna, onboarded and achieved full coverage in five countries, including the US, Spain, Germany, Canada, and the Netherlands. In Enterprise Wireless Solution, we're seeing the market for private 5G starting to industrialize. It's still, though, early days. But we continue to see growth in our wireless WAN solutions. But that was partly offset by lower sales in private 5G. So it's still a developing market here. But before passing on to Lars to go through a bit more of the numbers, I'd like to take a moment to just go through our capital allocation strategy. Our top priority is to invest for technology leadership, and we expect this to be largely organic. We don't really see any need for large acquisitions going forward, as we believe we have the assets needed to execute on our strategy. However, we expect to see some smaller potential tuck-ins but that will be smaller in nature. So our current very strong financial position offers scope for increased shareholder distributions. And as you have seen in this report, the board is proposing an increased dividend to 3 kronor per share and a buyback program of up to 15 billion kronor. So that would be a total of 25 billion to shareholders. This represents the largest shareholder distribution in our history and reflect our strong position and the board's confidence in our strategy. So Lars will now go through this as well as our financials. So over to you Lars.

All right, thank you. I will begin with some additional comments on the group before moving on to the segments. Net sales in Q4 totaled 69.3 billion SEK, with organic sales growing 6% year-on-year and with growth in all segments. Sales grew in the market area Europe, Middle East and Africa, and in market areas Southeast Asia, Oceania and India. Market area Americas was broadly stable, impacted by intense competition in Latin America, offset by slight growth in North America, driven by higher software growth. and Northeast Asia declined. Reported sales decreased by 5%, impacted by a negative currency effect of 6.8 billion. In Q4, adjusted gross income was 33.2 billion, including a currency headwind of 3.6 billion. Adjusted gross margin reached 48% as a result of our cost reduction measures and operational excellence in both networks and cloud, and software and services. On the cost side, we made steady progress. Operating expenses excluding restructuring charges dropped to 21.4 billion, around 2 billion lower year over year. Of these, about half is currency and the rest is cost initiatives. Excluding FX, R&D remained broadly stable. Adjusted beta was 12.7 billion up by 2.4 billion, including a negative currency impact of 2.5 billion. And the beta margin was up around 4 percentage points to 18.3. Behind this improvement is the good progress we've seen in terms of optimizing our operations and lowering our operating expenses. Cash flow before M&A was 14.9 billion, driven by earnings and reduced net operating assets. As Berger has already highlighted, the board will propose higher shareholder distributions following the good 2025 cash generation. Let's move on to the result for the full year. Net sales amounted to $236.7 billion and organic sales grew by 2%. Growth in America's and in Europe, Middle East and Africa was partly offset by declines in the other market areas. At the same time, reported sales decreased by 5%, impacted by a negative currency effect of 13.9 billion. The sales decline, which gives a significant volume impact on gross income, was more than offset by higher gross margins. adjusted gross margin was 48.1 percent with support from cost reduction initiatives and operational efficiency the result on adjusted gross income was an increase of 2.5 billion to 113.9 billion despite the negative currency impact of 7.2 billion turning to operating costs excluding restructuring charges and impairments Operating expenses dropped to 81.2 billion, which is 7.4 billion lower than the prior year. Of these, about two-thirds come from our cost initiatives, mainly from SG&A, and the rest is currency. Adjusted beta increased to 42.9 billion, and the margin was 18.1, or 14.9 excluding the capital gain from iConnective. Net income for the full year was 28.7 billion, including the benefit from iConnective, the gain from iConnective. Cash flow before M&A was 26.8 billion, a reduction of around 13 billion compared to the prior year. In 2024, a strong working capital reduction contributed to higher operating cash flow. I'll cover cash flow more in details here later. So let's move to the segments. In networks, sales decreased by 6% year-over-year to 44.2 billion with a negative currency impact of 4.4 billion. So organic sales increased by 4%. We saw organic growth in market area Europe, Middle East, and Africa driven by Middle East and Africa. Sales also grew in Southeast Asia driven by Vietnam. Sales declined slightly in Americas due to continued price competition in Latin America. Sales were broadly stable in North America with continued healthy investment levels. Sales also declined in Northeast Asia due to timing of network investments. And networks adjusted gross margin increased to 49.6% despite the high share of service sales. And the margin benefited from cost reduction, actions and operational efficiencies. Adjusted EBITDA in networks was stable at 10.1 billion, despite the currency headwind of 1.8 billion. And adjusted EBITDA margin was 22.8%, an increase of 1.2 percentage points compared to last year. And looking at the right-hand graph, the full-year adjusted gross margin reached 50% and stabilized at the new level. And adjusted EBITDA margin reached 20.7%. Moving on to segment cloud software and services. Sales increased by 3% year-over-year to 20 billion, despite the negative currency impact of 1.8 billion. Organically, sales grew by 12%, mostly driven by higher core sales across all market areas and timing of project deliveries. Adjusted gross margin came in at 44.3%, an improvement of around 5 percentage points compared to last year. driven by a high share of software sales and continued delivery efficiency. Adjusted EBITDA increased to 3.7 billion with a margin of 18.6%, supported by the effective implementation of our strategic initiatives. Looking at the right hand graph, the full year adjusted gross margin was 43% and adjusted EBITDA margin 11.4%. These are both new high levels. Enterprise sales stabilized on an organic basis in Q4, growing 2%. Reported sales decreased by 25%, and that's an impact of the sale of iConnective and currency. Global communications platform organically grew by 3%, driven by an expansion in CPaaS. And adjusted gross margin declined to 52.1%, driven by the iConnective divestment. Adjusted EBITDA landed at minus 1.1 billion, improving by 0.1 billion compared to last year, despite the iConnective impact. Turning to free cash flow, which was 14.9 billion before M&A in the quarter and 26.8 billion for the year. We deliver a cash flow to net sales of 11% for the year within our 9 to 12% target. The decrease in cash flow year on year is due to very strong working capital reductions in 2024. Working capital in 2025 was broadly stable at historical low levels. A net crash increased sequentially by 9.4 billion to 61.2 billion. Return on capital employed in 2025 was 24.1%, including die-connected gain. While excluding it, it was around 19%. Then turning to capital allocation. During 2025, the board has undertaken a review of the balance sheet and the capital allocation principles. On the balance sheet, we remain committed to an investment-grade credit rating and to maintaining a solid net cash position. Turning next to the four capital allocation priorities. First, the top priority is to maintain a technology leadership who continued R&D investment to ensure customer confidence at all times. Second, we are committed to a stable to progressive ordinary dividends. And third, as already mentioned, we remain selective with inorganic investments. And finally, any excess cash will be distributed to shareholders. So for 2025, the board will propose an increased dividend of 3 kronor per share and a share buyback program of up to 15 billion at the AGM. After adjusting for the total sharehold distribution of approximately 25 billion, the 2025 net cash position is at a solid level, considering future investment needs and the business outlook. Next, I will cover the outlook. Global uncertainty remains with potential for further changes in tariffs and broader macroeconomic factors. The outlook assumes stable exchange rates and no tariff changes here. So for networks, we expect Q1 sales growth to be broadly similar to the three-year average quarter-on-quarter seasonality. For cloud software and services, We expect Q1 sales growth to be below the three-year average, quarter-on-quarter seasonality. And we expect networks adjusted gross margin to be in the range of 49% to 51% for Q1. And restructuring charges for the full year 26 are expected to be at an elevated level with proposed headcount reductions recently announced in Sweden and continued actions across other markets. With that, I hand back to you, Berger.

Thanks, Lars. So today we have a very strong position and a very competitive portfolio. In many markets, there will be a need to invest to keep network performance at a competitive level. And as you've seen, we've made critical inroads in many key markets during the year, for instance in Japan. In 2026, we're planning for a flat-ish run market, but expect growth to come from new areas. This means we will need to continue our efforts on operational efficiency. And by doing so, we can strengthen our company for varying market conditions. This will enable us to continue with critical investments in technology leadership, including increased R&D investments in defense and mission critical, while at the same time supporting our margins and cash flow generation. Overall, as I mentioned before, we're entering a very exciting time where AI will move from a focus on data centers and large models to devices and applications. This will require advanced wireless connectivity, putting Ericsson in the middle of the next phase in the AI era. Our strategy is focused on making sure we capture this opportunity. We're doing it by providing the industry's best network for AI that enable differentiated services and new monetization opportunities. This includes both new use cases, including by exposing networking capabilities through network APIs, but also new sectors such as mission-critical networks. This will allow us to capture a significant share of the value from connectivity and help drive growth for us as Ericsson. So if I draw this out a bit longer term, I believe we can have a model with a slattish mobile networks market, but with our investments in growth areas, that basically we can see a modestly growing top line. So if you combine the operating leverage actually improving profitability in the enterprise segments as well as share buybacks we should see a healthy growth in profit per share so to wrap up in 2025 we were laser focused on strategy execution and continue to take critical steps to position Ericsson for the future We're unlikely to see growth in the RAN market this coming year, but our investments in mission-critical 5G core and enterprise will drive growth for the company. I would say it's exciting if you ask me. On that note, I also want to thank all my colleagues at Ericsson for a lot of great work. Thank you, team. With that, I think it's time for you, Daniel, to lead us through some Q&A.

Thanks very much. We'll now move to the q&a. As a reminder to ask a question, you'll need to press star one and one on your telephone and wait for your name to be announced. If you're streaming the webcast, please mute the webcast audio while asking a question to minimize any audio 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. Thanks. Okay, operator, we're ready to open the line for the first question. The first question today is going to come from the line of Simon Granath at ABG. Simon, please go ahead.

Thank you, Daniel, and congrats, Team Ericsson, for the solid results here. On OPEX, I'd like to push a bit on the medium-term trajectory and the R&D balance, with rent, demand looking broadly, flat-edge into 2026, OPEX largely reflecting salary inflation rather than volume. If we assume a similar demand environment into 2027 with 60 still later in this decade, how do you think about the risk of managing R&D and where capability changes too early? So simply on the midterm OPEX trajectory. Thanks.

When you look at the OPEX levels that we have today and the structure we have, it's a question about working and investing and we are already in 2025 and going into this year. There are key strategic areas where we are investing and some other areas where we are taking other decisions so i think so that and that will also be the how we will work going into 2027. then of course there is a continuous cost inflation that we need to drive through productivity to ensure that we we keep the right level here going forward as well so that will and when this big investments comes we will see i think you will have to comment as well from your perspective

I think given the flattish market we're in, we will have to work continuously on the – I call it R&D efficiency. But there is also a question of making sure we allocate to the right areas. This is why new areas like mission critical is actually critical to be part of, as well as defense applications. We believe that we can, even in a flattish market, we can actually have the right R&D level with the program and with the efforts we have in place. But as you note, it requires us to really be at the forefront of R&D efficiency as well. But you should not expect us to... Put it this way, we are not going to trade off technology leadership, and we believe we can have technology leadership at the spend level even into 27 and beyond.

Thank you so much.

Moving to the next question, please. The next question is going to come from the line of Eric Rosenstahl at SEB. Please go ahead, Eric.

Sure. Good morning. Congratulations on the results here. So just, Börje, you mentioned increasing investment in defense in 26 and mission critical was a key driver here in the quarter. I understand this is a good market for you right now, but can you please shed some light on how large the exposure is that you have currently in this area and what the size of the opportunities that you see out there, how large are they? Thank you.

If we start in the end of discussing, first of all, what we want to say here is in reality, the investments we make in defense today is captured in the total R&D spent. And as we go forward, we see that we probably need to increase that a bit. And the reason for that is we actually see the potential for a very sizable market in defense, given what the spending in the US, of course, but it's also the increased European spending on defense, will make this into a fairly sizable market. And we see that market moving from what I will call dedicated solutions, kind of proprietary technology solutions, into much more of 3GPP-enabled solutions. And the reason for that is simply that that is more cost effective and it's going to be much better performance. So we see actually the communication market in defense to be a sizable opportunity that we want to make sure we're early on in. But there are also other applications. So think about defense from a broader perspective, the sensing capabilities of the defense solutions we have actually allows you to, for example, do drone detection. Think about where the usefulness of that and it can do detection of objects that are not connected. So it's basically, you know, maybe popular wording will be called the radar. These are major opportunities that we would say are really large that we want to position ourselves to go after. So when you see us increasing spending, it's not, you know, I think part of it will be offset with other efficiency gains. But we want to say that we actually go after an opportunity here that we think is rather sizable.

Thanks, Eric. Moving to the next question, please. The next question is going to come from the line of Jacob Bluestone at BNP. Please go ahead, Jacob.

Morning. Thanks for taking my question. I had a question around supply chain shortages. I'm wondering, sort of broadly, are you seeing any issues that might hold back your ability to grow? And specifically, can you comment on the impact of memory price increases? So, what share of your filler materials relates to memory chips? Do you hedge these? Can you pass on any price increases to customers? Thank you.

When it comes to the supply chain, I think we have worked for quite some time on resiliency. And when it comes, that is including then supply chain, so to say, deliveries. So that is continuous work that we do. So, but of course, when it comes to the memory side, it has been quite a bit of noise around that. But I think we are in a good position of handling that as it looks for this year here. And on the pricing side, it is a mix. Of course, there is some impact, but also here it's really working close with our suppliers, also together with our customers to make sure that we are not squeezed in the middle here. So it's both ends here to work with.

Can you maybe just expand, how have you avoided shortages? Is this just by building inventories?

It's part of how we work, but also to have a good relation, a long-term relationship with the different suppliers that we work with.

Understood. Thanks. Thanks, Jacob. 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.

Good morning, everyone. Moving from the splendid operations to the buybacks, perhaps. And if we assume that you make 25 billion in free cash flow on a sustainable level, that is equal to the total remuneration to shareholders. So should we say that around 45 billion is a net cash that you feel, that you and the board feel is needed for the, to run the operations?

I think as we mentioned there, The view is that it's important to have a solid net cash position and we're coming out here with 61.2 billion in net cash and the total distribution of around 25 billion. And adjusting for that, we have given the business outlook that we see now, we see that it is a solid net cash position coming out of 2025. Then when we come to next year, then we will have a look again, of course. But the capital allocation principles are there, and that is guiding us also going forward.

And when you think about the business outlook, of course, you need to think about geopolitics. You think about, you know, whether it's the question before, you know,

tight supply chain for example then all of these factors reaches the conclusion that that was the the right level now and just as a as a follow-up is there any thinking from the board and from the management given what you said before about growing eps that you could that you would like to have a more long-term buyback program and making sure that you can achieve that

I think this is the first time Ericsson now announces buyback programs, so it is clearly a part of the toolbox for the board and the AGM and for the shareholders to decide upon.

Yeah, I think you would also say, Andreas, that it's intentional that it's launched as a buyback program, and you also know the mandate for those who are reviewed annually by the AGM. So this will be our hope and ambition and thought is that this will be a recurring thing. Then the size will vary, of course, depending on how the outlook looks like.

Thanks, Andreas. Thank you so much. Moving to the next question, please. The next question is going to come from the line of Sandeep Deshpande at JP Morgan. Go ahead, Sandeep.

Yeah, hi. My question is on the market in mobile networks overall. Has the market changed at all? I mean, we've heard about the EU restricting some of the high-risk vendors, but at the same time, you're seeing a greater price competition in Latin America. You can make some comments on how this market overall is playing out in the world, given the geopolitical situation.

Yeah. A way to think about it, Sandeep, is we look at this market for the last two decades, right, and it's been flattish. So we like to think or plan for that type of market outlook. If it gets better, then we have a strong cost competitiveness, we get operating leverage. If it gets worse, we need to review that assumption, right? But that's kind of the way we think about the business. Then, of course, it varies what happens. So over the last few years, and I think we spoke about this a couple of quarters ago, that we saw increased competition in Latin America. We see it from time to others in other parts of the world, Southeast Asia, Africa, et cetera. So that kind of comes and goes a bit. The thing that could be a positive is, of course, the high-risk vendor market. discussion in the EU. That's a sizable opportunity. If you think about the, you know, it's – I mean, we don't know exactly, but call the high-risk vendor market presence in Europe to be a third to maybe up to 40 percent, but around that as a guideline, that would be a sizable revenue opportunity for trusted vendors. So that could change. At the same time, now it's a proposal, it has to go through the process. So this is something that's probably going to take 12, 18 months before we really know the impact. So we're not factoring that in, but of course it is an upside opportunity. And of course it is, I would say, the toolbox the EU discussed or implemented Quite some time ago, it's 5-6 years ago, has been not been widely adopted, so it is a change in stance with the current proposal. Thank you, Boris.

Thanks for the question, Sandeep. Moving to the next question, please. The next question is coming from the line of Sebastian Stabovitz at Kepler-Sjöbrunn. Please go ahead, Sebastian.

Hello, everyone, and thanks for taking my question. On networks, how do you see the mix trending in the coming quarters? We are now seeing some stronger growth in Africa, Southeast Asia, and lower developments in the U.S. and maybe also in Japan and Korea. So just curious about the mixed trend in networks, and also at a broad level, what will be the push and take to your growth margin in the coming quarters? Where do you see some upside or downward pressure? Thank you.

I think single quarters will vary, but if you look a little bit on the underlying 426, North America on healthy investment levels in the market and that we expect to continue during the year. And then when it comes to growth opportunities, there is an investment need in India and also in Japan where we have also in both these markets ensure that we have a good solid market position. So when the customers decide to invest, we should be able to capture on that. Europe, rather stable. And then there are, we will see what happens in Latin America. There is opportunities there, but still quite tough competition for sure. Parts of Southeast Asia as well. So I think that's a little bit the balance act. in africa we have had a couple of good quarters now with 5g 4g and 5g rollouts and modernization activities and hopefully we can see that continue also going into to this year so that's a little bit the balance act on the market mix And then the puts and takes, there is a cost pressure in the group, in the flat run market and continuous cost pressure on us both in the people part but also in material cost so that we need to continuously work with. That's why we talk about then somewhat higher elevated levels of restructuring both that will impact both. but also in the cost of goods sold. So that is necessary to offset this upward pressure on cost. So that is some of the puts and takes. Then you have the normal product mix, but that will vary between quarters, as always. Thank you.

Thanks, Sebastian. Moving to the next question, please. Next question is going to come from the line of Felix Hendrickson at Nordea. Please go ahead, Felix.

Hi. Thanks for taking my question. It's relating to IPR. I think in the report you called out that IPR You had a contract expiring with the Chinese mouthful vendor at the end of 2025. So I just wanted to ensure whether or not there are other significant contract cliffs in 2026 that we should be aware of. And as a quick follow-up to that, what is your level of conviction in being able to grow the 13 billion Swedish krona annual run rating IPR going forward? Thank you.

yeah normally we try to give you that guiding point around the run rate coming out of the year around 13 when it comes to the contract this is not a major impact and we always when we negotiate re renew contracts we are targeting the best economic outcome and that we will do as well this time so that could be some impact here but that is then normally coming back with the renewals so it should not impact the full year so to say And then potential upsides are there. We are in settlement negotiations with one of our licensees. So that is hopefully coming into place this year. And then there is the underlying opportunities around the pure smartphones when it comes to IoT, automotive, et cetera, that should support growth coming into this year as well. So that's a little bit the pieces that will drive some opportunities.

Thank you. Thanks, Felix. Moving to the next question, please. Next question is going to come from the line of Ulrik Rasa at Bernstein. Please go ahead, Ulrik.

Thanks very much. My question is on the bigger picture of the revenue outlook. So you're guiding for a flattish market and highlight the growth opportunities in mission critical and other areas. And now in the fourth quarter, you delivered mid-single-digit organic growth, which is taken with some excitement in the market today. Would you go as far as saying that something like mid-single-digit revenue growth is possible? in a flattish run market with the growth opportunities in these new opportunity areas that you're highlighting? Or is this maybe a bit of a phasing effect here? I think you highlighted the particular in CSIS, the deliveries, the delivery phasing. Just wondering what your bigger picture here is. Thank you.

I think if you think about it from a little bit longer-term perspective, and it's going to fluctuate, right, but the size of the mission-critical market and the enterprise opportunity, as well as 5G core that contributes here. 5G core, by the way, you should remember it's only about a quarter of all networks that are upgraded to standalone today, so there is a rather sizable opportunity there. So when you look at those outlooks, those individual pieces, they are large enough to drive a pretty nice long-term growth. It's not going to be double digits, as you say, so take that out. But it may be low to mid single digits. And I think that's what makes me a bit excited is actually to think about it from – from that kind of at least some basic growth, and you add on operating leverage on that, you add on what we're seeing on enterprise that we're going to get that to profitability, and you combine that with share buyback, you actually get a very healthy growth profile. So I think there is something here that I think from a little bit longer-term perspective is rather exciting.

Very clear. Thank you very much.

Thanks, Ulrich. Moving to the next question, please. Next question is coming from the line of Sami Sarkomedes at Dankske Bank. Please go ahead, Sami.

Thanks. I have a question on your silicon strategy. Your competitor recently announced that they will start building products based on NVIDIA chips. You have also done some R&D work related to the use of GPUs. What is your take on the situation and do you see a role for NVIDIA in future RAN products?

You know, we selected a strategy several years ago to basically disaggregate the software and hardware and actually allow our software to run on pretty much any architecture. And of course here, you know, we can run on of course, the x86, but it can run on GPUs. It can run on our proprietary silicon as well. And by the way, you could well see the TPU from Google. You could see what Qualcomm is coming with, AMD, et cetera. So we wanted to be a bit independent of the selection of the hardware layer. The reason for doing that was that We felt it was the right strategy to give the customers the opportunity to choose what hardware layer they want to run on. And, you know, today there are operators rolling out Cloud Run. That's on x86. In the future, it may be different. So I think the – I cannot comment on Nokia's decision. That's for them to comment on. But from my point of view, we wanted a very different strategy, not to select the infrastructure layer today, but rather do that as we come closer towards AI RAN realization and 6G. Then we can make an intelligent choice together with our customers. And we feel good about that strategy, but that also means that we're going to continue to work with, the x86 ecosystem and the GPU ecosystem.

Thanks for the question, Sami. Moving on to the next question, please. The next question is going to come from the line of Didier Cementa at Bank of America. Please go ahead, Didier.

Yeah, thanks Daniel. Good morning, everyone. Sorry to come back to the point on memory and cost inflation. I'm looking at your inventories, which are, you know, seasonally lower in Q4. You seem to suggest that you have adequate supply from your suppliers. Can you elaborate a little bit? Have you signed like a 12-month supply agreement that makes sure that the pricing is not going to be a headwind to your gross margins? or put it in a different way? What have you assumed in your gross margin in terms of inflation from memory? over the course of 26. Thank you.

I think inventory levels are coming down in the fourth quarter following the seasonality that we have, and that includes all inventories. So when it comes to that part, I think we are well positioned coming into the year when it comes to inventory levels on these kind of areas. Then, of course, there is cost increases coming that we need to work with. But we don't share exactly how much that is, of course. But it will have some impact. But we will work together with our customers to ensure that we are, so to say, not stuck in the middle here. But there is an understanding that there is some sharing to be done here.

Okay, thank you for that. And sorry, again, to go back to the defense point, I think you sort of said, look, with the opportunities, can you give us a sense of the size of your business today in defense? What sort of cost you're thinking about? Does that require any capex? Just elaborate a little bit so we've got something to work with. Thank you.

Yeah, I think you can assume, you know, we're not going into details exactly what our business is because we We're working with a number of defense organizations. As you know, Ericsson exited all defense several years ago, so we haven't really had a presence. So today we're working in partnerships as well as with defense organizations. So we're not going into details there. And I think when you look at the overall sizing, you know, the revenue opportunity, there are a number of consultants out there talking about the size of that opportunity. And some are very big numbers. I'm not sure it's going to be that, but we think it's compared to the rest of the opportunity we have, it's sizable. When we talk about it from an investment point of view, this is more saying that we will ramp up our presence in here and actually increase our investments, it's not going to be material compared to our overall 50 billion kroner we spend on R&D. So that's why we also say that it's part, you know, it can be... will be offset, maybe not fully, but by the efficiency gains that we're going to do. So when you look at it from a total point of view, think about it as there is a big opportunity. We will try to invest to get that. We're not going to materially impact our outlook with that. That's not the case. But we want to single it out as a growth opportunity.

I think on your questionnaire on CapEx, it's very, very limited.

Yeah, that's fair. That will be... You will not see that as a CapEx need. Okay. Thank you so much for the details.

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

Thank you, and good morning, Borge, Lars, and Daniel. I have a question. If you could give any more color on the visibility of the North American brown market in 26, Is it fair to assume a more back-and-loaded year given some of your larger customers' active asset holdings, for example, that could I expect to build upon in the latter part of the year?

I think we say that when it comes to the full year, we are coming out with healthy investment levels and we expect that to continue. Then how it will pan out between quarters, it's actually rather, I think, difficult to say. It depends on the capital investment needs that they have and different rollout phases, et cetera. So I don't think it's... Today, easy to say what will be the difference between the first and the second half.

I think that we don't guide that way. We have elected to do it quarterly and I think that's why we do it quarterly. What I do think is fair to say that when we look at the North American market – and by the way, this is actually a global phenomenon – but when you will hear I think our customers talk a bit about being cautious on CapEx. The interesting thing is we also see a change in mix in our customers. So we believe the active components are going to be needed because that's driven by the traffic growth and the need to go 5G standalone, as well as new use cases like fixed wireless access. So when you see that, you actually see... according to healthy investment level even though our customers most likely will guide for a bit lower capex without without knowing they need to guide on their own but but it's given signals that you can hear it's pretty clear you know they will be a cautious on capex perfect thank you very much and good luck in q1 thank you thanks for the question

Moving on to the next question, please. The next question is going to come from the line of Andrew Gardner at Citi. Please go ahead, Andrew.

Thank you, Daniel. Morning, William. Morning, Lars. I was just coming back to a point you made early in your presentation regarding the performance that you'd had over the course of 2025. Your profitability has improved noticeably last year. You've had two good years of operational cash generation. And so that is putting Ericsson, as you point out, in touch and distance of the long-term financial targets. That being said, these targets are some years old at this point. Are they still relevant and accurate targets for us to use in the market? Or given the changing state of your end markets and your strong execution, is there the possibility to do better? Do you have the ambition to perhaps outperform those somewhat old targets at this point?

I think it's right that they're old. We have not succeeded at reaching them, so that's a fair comment. But I think we should remember we also set the targets in a different environment, geopolitically, as well as business mix, to be honest. So we set them when iConnective was part of our portfolio. We set them in a very different political environment. I think we, you know, I'm not a fan of changing targets easily. So we want to make sure that we reach that 15 to 18 first. Once we're solidly there, then I think we can start to talk about is that the right target after that. But right now I think it's a good measure of what we should achieve with the current type of business we have.

Thank you.

Thanks for the question, Andrew. We just have time for a brief follow-up question from one of the analysts before we close. So if we can bring Daniel back in. Daniel Gerberg, Anders Banken. Daniel, your line is open for a brief follow-up. Thank you.

Thank you so much. Then I would like to ask you a little bit on the cloud software services. Sorry if I missed the answer before, but could you help us to understand a little bit more on the impact of this large contracting in most of the quarter? Would the outlook comment on Q1 seasonality have changed to more of a similar view if the contract has been excluded in Q4?

That's a good question. As we said, we're coming out strong in Q4 here. As you know, we have lumpiness when it comes to project deliveries which are, if you look at the full year, We are up around some 6% organically in cloud software and services. And I think that has been a good underlying growth that we have seen supported by the core business. And that is what we see as a healthy level coming into 26. then of course if that single comment would bring us back to normal i think that's that's a little bit it would of course bring us closer for sure that that is true and then we should remember i think you have all seen that that we have a significant currency headwind coming in in Q1 year-over-year as a comparison. That you will see currency rates peak somewhat in P in Q1 25. So that headwind we also are facing here.

Thank you very much. Look forward to see you in Barcelona.

Thank you. Thank you. Thanks everyone for joining. That concludes the call.

Thank you.