Ericsson

Hello, everyone, and welcome to the presentation of Ericsson's first quarter 2026 results. Joining us by video today is Birri Ekholm, our president and CEO. And in the studio, I'm joined by Lars Sandström, our chief financial officer. As usual, we'll have a short presentation followed by Q&A. And in order to ask a question, you'll need to join the conference by phone. Details can be found in today's earnings release and on the investor relations website as well. 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 subjects 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 Bury and Lars for their introductory comments.

Thanks, Daniel. And good morning, everyone. And thanks for joining us today. Q1 was a solid start of the year and with the results that reflects our continued execution against our operational and strategic priorities. We saw a very large currency headwind during the quarter, probably one of the toughest quarters from a comp ratio, as the Swedish krona strengthened towards almost all currencies compared to last year. So this, of course, materially impacted every line of our financial statements with reporting sales falling 10%. At the same time, we've performed well operationally, realizing strong organic growth of 6%, with all segments contributing. Our results are a testament to our leading portfolio and the investments we've been making in furthering our technology leadership. Over the last few years, we've actively managed to reduce dependence on geographic mix, Of course, we realize that North America often receives a disproportionate interest from, I guess, the analyst community, but also around the world. And that's, of course, natural because it is a front-runner market. And this quarter, we saw sales reduced by mid-single digits in North America. But we could still deliver a gross margin of 48.1% for the group and 50.4% for segment networks, indicating that the work we've done to balance out the geographic mix is coming through in the results and giving us less sensitivity to geographic mix. Cloud software services continue to execute well. We reached a gross margin of 43.2%. That's up more than 300 basis points year over year. Revenue seasonality was in line with the guidance we had for the quarter. And we saw some deals being pushed into Q2. And we expect to see that therefore stronger seasonality than normal next quarter. EBITDA came in at 5.6 billion kronor with a margin of 11.3. And the strengthening of the Swedish kronor affected EBITDA by 2.2 billion kronor. And you've also seen we had the revaluation of the long-term stock-based programs. And all of those are, of course, included in the result. Cash flow during the first quarter is seasonably lower, typically. Despite this, cash flow came in at a healthy 5.9 billion kroner, with a net cash position of 68.1 billion. And as you've seen, just a couple of weeks ago, the AGM approved the board's proposal on increased dividend and our first share buyback program. we will start to execute on the share buyback program next week with the target to buy back 15 billion kronor. In the next phase of AI, we see that high-performance mobile connectivity will become increasingly important. Even so, our planning assumptions for the RAN market remains flat over the longer term. With disciplined execution, we create room to make selective investments in growth to broaden the mobile platform to new use cases and new sectors. We believe the growth will come in areas outside of our traditional CSP markets, and then we're talking about areas like enterprise and mission-critical networks. In our enterprise segments, which includes our wireless WAN business, private networks, network APIs, or as we now call it actually, network-powered solutions, and mobile money, organic growth was stronger, which is encouraging. There are new markets that we see as key opportunities going forward. Of course, new markets take time to develop, but we're now seeing these efforts start to scale. I would also comment on the loss in enterprise of 1.4 billion kronor. It's clearly unacceptable, but it also includes a number of one-time costs. And we have an improvement plan in place that we're executing on. And we expect to see that coming through through shrinking losses during the rest of the year comes from growth, operation and discipline. And of course, that the one time costs abate. We're also driving several other growth initiatives and there we see good progress. In mission critical networks, which tend to be a bit lumpy and vary by quarter, we're experiencing strong interest in several verticals, particularly within defense solutions. In modern defense applications, high performance, and then I'm talking about large capacity connectivity, is required. And this will make 5G standalone a cost-effective alternative. And we've seen a trial with the Italian Navy or actually a deployment with the Italian Navy this quarter. Another very exciting area is 5G-based sensing, where one of many use cases is about detecting unconnected drones, And a few weeks ago, we showcased our solution, which is seeing significant customer interest, of course, given a difficult current market environment geopolitically. We see that our technology here has great market potential, and we're now starting to invest to capture these opportunities. I would say this is just one example that you don't have to wait for 6G to get part of new exciting use cases with the technology we have. So we're seeing good momentum on our strategy execution. And we've strengthened Ericsson operationally. And I would say this is showing now in our Q1 results. With that, let me give the word over to you, Lars, to go through the numbers in some more detail.

All right. Thank you, Bayer. I will begin with some additional comments on the group before moving over to the segments. Net sales in Q1 totaled 49.3 billion, with organic sales growing 6% year-on-year. The growth was broad-based, and sales grew in all segments, and free market areas delivered double-digit organic growth, driven by continued 5G rollouts and increased uptake of 5G core. Americas declined 2%, with strong growth in Latin America, more than offset by a mid-single-digit decline in North America following a strong quarter last year. Reported sales decreased by 10%, impacted by a negative currency effect of 7.8 billion then, so organic growth again grew 6%. IPR revenues were 3.1 billion and this run rate coming out of the quarter is approximately then 13 billion. Adjusted gross income was 23.7 billion with a negative currency impact of 3.8 billion. Adjusted gross margin was 48.1 in line with last year excluding iConnected. On the cost side, operating expenses excluding restructuring charges dropped to 18.4 billion, around 2 billion lower year over year, driven mainly by currency as well as the divestment of iConnective. Underlying inflationary pressures were more than offset by cost reduction driven by headcount as well as efficiency measures. And as Barry mentioned, adjusted EBITDA, which excluded structuring but includes the other one-offs, was 5.6 billion. This is down by 1.4 billion, including a negative impact of 2.2 billion, the divestment of iConnective, and 0.5 billion of additional share-based compensation costs coming from the increased share price here during the quarter. The EBITDA margin was 11.3%. Cash flow before M&A was 5.9 billion, driven by earnings and reduced net operating assets. So let's move to the segments. In network, sales decreased by 8% year-on-year to 32.9 billion, with a negative currency impact of 5.2 billion. Organic sales increased by 7%. Organic revenues grew in three of our four market areas. Two strategic markets, India and Japan, grew strongly. North America declined, impacted by customer spend reallocation in Q1 this year following recent market consolidation. Customer investments were also elevated last year due to tariff uncertainty impacting the comparison. Networks adjusted gross margin decreased slightly to 50.4%, mainly reflecting actions to enhance resilience in the supply chain. Adjusted EBITDA was 6.4 billion impacted by a negative currency impact of 2 billion and benefiting from lower operating expenses, which were also supported by continued efficiency improvements. Adjusted EBITDA margin was 13.3%. Looking at the right hand graph, the rolling four quarters gross margin stabilized around 50% and adjusted the beta margin at around 20%. Moving to the segment cloud software and services. Sales here decreased 9% to 11.8 billion, including a negative currency impact of 1.6 billion. So organically sales grew by 4% with growth primarily in core. Adjusted gross margin came in at 43.2%, an improvement from 49.9% last year, supported by improved delivery efficiency and a favorable product mix. Adjusted EBITDA increased to 0.6 billion with a margin of 5.3, despite a negative currency impact of 0.3 billion. Lower gross income was offset by lower operating expenses here. Looking at the right hand graph, the rolling four quarters adjusted gross margin was around 44% and adjusted beta margin around 12%. And these are both new high levels. So reported sales on the enterprise side decreased 30% impacted by the sale of iConnective and Currency. On organic basis, enterprise grew by 4% and this marks the second quarter of organic growth. Adjusted gross margin declined to 49.0%, reflecting the impact of the divestment of iConnective and change in business mix in global communications platform. Adjusted EBITDA landed at minus 1.4 billion, reflecting the divestment of iConnective and non-recurring cost of 0.3 billion in the current quarter. Turning then to free cash flow, which was 5.9 billion before M&A in the quarter. We delivered a cash to net sales of 13% for the rolling four quarters above our 9-12 target. And cash flow generation was strong, supported by earnings and a stronger than normal seasonal reduction in operating net assets. Net cash increased sequentially by 6.9 billion to 68.1 billion here in the quarter. The buyback program of up to 15 billion was approved by the AGM and share repurchases will start now soon. Next, I will cover the outlook. Global uncertainty remains elevated given the broad geopolitical and macroeconomic environment, including the global semiconductor situation, and I will come back to this. The Q2 outlook assumes no tariff changes and the exchange rates specified in the report. For networks, we expect sales growth to be broadly similar to the three-year average quarter-on-quarter seasonality. And for cloud software and services, we expect sales growth to be above the three-year average quarter-on-quarter seasonality. We expect NetWorks adjusted gross margin to be in the range of 49-51%. And restructuring charges for 2026 are expected to be at an elevated level, with a fairly large part already seen in Q1.

So with that, I hand back to you, Veja. Thanks a lot, Lars. So our Q1 results demonstrate the strong execution of our strategic priorities and the actions we've taken over the last several years to strengthen the company operationally. This includes how we made Ericsson less reliant on any specific geographical mix, enabling us to sustain healthy margins in varying market conditions, as you have seen in today's report. Our actions also include how we diversified our supply chain to mitigate as much of the geopolitical disturbances as possible. This continues to be a clear competitive advantage, enabling us to meet customer commitments amid the current backdrop. Of course, the global semiconductor situation remains challenging as the AI boom is increasing input costs. We continue to take actions, and Lars mentioned this as well, to mitigate this impact by working closely with both our customers and suppliers Of course, including our pricing. While we believe we're in a good position, we're not immune to these disturbances. So they will have consequences on price and availability. As of course, AI may be the key driver for our industry longer term. We see AI as a net positive for us. The next phase of AI will see AI being industrialized, shifting focus from current focus on data centers, large language models, rather to applications, devices, use cases. This will require advanced mobile connectivity with capabilities such as ultra-low latency and high uplink. This puts us in the middle of the next phase of the AI era. With our strategy, we are well positioned to capitalize on this opportunity. We're doing this by providing the industry's best networks for AI and by expanding the mobile platform to new use cases and sectors. This includes exposing network capabilities through network-powered solutions, allowing developers to use the network capabilities to create new use cases. It also includes opening up new addressable markets such as enterprise solutions based on cellular technology and mission-critical networks. And this will allow us to capture a greater share of the value from connectivity and drive mid-single-digit growth for Ericsson while achieving our long-term margin targets of 15% to 18%. So with that, I think it's time for some Q&A.

Thanks, Birya. As a reminder, if you'd like to ask a question, you'll need to press star 1 and 1 on your telephone and wait for your name to be announced. If you're streaming the webcast, please could we ask you to mute the webcast audio while asking a question to minimize any audio feedback. And as usual, if I could request one question per participant so we have time to hear from as many of you as possible, please, today. Thanks, operator. Time for the first question. The first question this morning is going to come from Simon Granath at ABG. Simon, your line's open. Please go ahead.

Thank you so much, Daniel, and good morning all. I have a question on Lars on the memory and cost inflation. And the Q1 modern performance for networks was, in my view, strong. But given the rising memory prices and as inventory runs down through the year, how confident are you that memory prices won't be a significant headwind for the rest of the year? And all is equal, and on this topic should be the Q1 marking the highest level for the year. Thanks.

All right. Thanks, Simon. When it comes to Outlook, we give, as you know, Outlook for the next quarter here. But when it comes to MISI memory cost and other semiconductor costs, there is as we say here a headwind coming and but we should also remember that it is a smaller part of our total cost base of course but there is a headwind coming and we are working hard to mitigate together with our suppliers but also together with our customers to share the burden here and then it comes to what can we do when it comes to product substitution etc and it is a bit too early i think already now to say how the impact will be but you will if there is and when there is things happening you will see that more coming into the second half of the year thank you so much appreciate it thanks for the question moving to the next question please

The next question will come from the line of Andrew Gardner at Citi. Andrew, please go ahead.

Good morning, all. Thanks, Daniel. So just on the North American revenue trends that you saw in the quarter, you've highlighted the pressure there for your sort of mid-single digit down year on year. I'm just wondering what your view for 2026 as a whole is for that region. You know, the comps, as you suggested, were particularly tough in the first quarter given tariff impact last year and some buy forward. Does the decline that you've seen in the first quarter, should that lessen as we come through 2026? Or are there other factors we should be aware of?

You know, you see a lot of forecasts in the market on the North American market. And I would say the development you've seen during the first quarter is probably similar to what we should expect for the year. I think that's fair to say, given our customers' guidance. At the same time, you know, we have a little bit different mix compared to the market where, as Lars noted, we were maybe hit a bit harder than the general market the first quarter because of the consolidation we've seen among the operators in the U.S. That was close. So, you know, if you net-net, I don't see a changing market condition, but I see a bit a better mix for us vis-a-vis the market. And as you know, we had a tough comp in Q1. But, you know, don't assume the US all of a sudden is going to change direction. That's why I want to come back to what I think is more important today is we're less exposed to North America from a geographic mix perspective. And the investments and commitment we've been talking about to diversify our mix. So if we are a bit weaker in North America, but stronger in another market for a quarter, we can actually compensate that and keep a very healthy gross margin. And that that I think lends for a better predictability of the total company and actually for a healthier way of operating the company. So while I think North America always will be important, from a mixed point of view, it will be less important going forward. We work with the customers as front-runner customers, but it's always going to swing a bit up and down in a quarter. So we're On the one hand, yes, I would always prefer them to grow, but the reality is it will swing. So the question is more how we can provide a healthy gross margin, a much more stable gross margin. I think Q1 is a good indication of the work we've done.

I suppose related to that, you mentioned the other strategic markets. India and Japan have been the two you've highlighted away from North America. You did see good growth there. Is that something that is not just a one Q impact, but we should expect steady growth from those two key markets through the year?

There we have actually strengthened our market position. So we should see healthy growth as we continue to deliver on those opportunities. So I'm actually very comfortable about that.

understood thank you very much thanks for the question andrew moving to the next question please the next question is going to come from the line of eric lindholm rogers style from scb please go ahead eric your line is open thank you and good morning everyone

And thanks for taking my questions. Just one question here. I wanted to ask on OPEX and the impact of cost savings. I mean, it looks like underlying OPEX is down around half a billion, as you mentioned, despite the one-off impact that you flagged here. So what sort of inflationary pressures do you see in OPEX for the rest of the year? And when should we start to see the impact from the cost savings that you have launched in Sweden here at the start of the year, for example? Thank you.

Yeah, when it comes to OPEX, I think in the quarter here, it's down organically. I think it's currency and iConnective that is impacting. And then there is somewhat also underlying cost reduction coming through here. And we are continuously working with that. The inflation we talk about since a big portion of the cost base in OPEX is related to people. Of course, there is an underlying continuous salary increase that is coming that we need to work with. And our working assumption is that we live in the flat rent market and that we need to accommodate too by continuously working and finding efficiencies and reductions where it is possible. And then we do that continuously. continuously so that is what we are working with here every quarter continuously and you saw there was quite a bit of restructuring here coming in in the first quarter now primarily to to the sweden area but also the rest of europe we have activities in north america in asia etc so that is a continuous work that we are doing and we will continue that also in the coming quarters

All right, but I guess it's fair to say that these measures will more so show in the second half then?

The ones that we announced today or in this quarter, of course, they come more in the second half of the year and into next year. And then we have the previous ones that is coming, you can see now, so that is a continuous work that we do.

I would just add there, by experience, it takes a bit longer than you hope to see it in the numbers. So, you know, theoretically it should come in Q3, of course, or Q2, Q3, but it will be a bit of a delay there. That's why you see the cost kind of not exactly following the number of employees because it's simply associated with costs around when we take costs out. But you will see it after the second half and into next year. Excellent.

Thank you. Thanks for the question, Erik. Moving to the next question, please. The next question is going to come from the line of Andreas Jolsen at DNB. Please go ahead, Andreas.

Thank you, and good morning, everyone. Follow-up on the COGS question that we had. Of course, there's a headwind coming from the component prices, but you have been able to increase the gross margin in networks for some time, and now it has stabilized. What other areas... Within costs, have you sort of from experience the last few years learned that there is maybe that you can use to compensate for component price increases? So it's not just negotiations with vendors and customers that could keep the gross margin resilient, as you say.

if you understand that blurry question. Thanks for the question, Andreas. I can try to give you a notion. Of course, the most important one is to work on the prices. It's undoubtedly the case, and that we continue to do. The other levers we have, which actually have proven to be very sizable, is product substitution, i.e. we can... Through technology development, we deliver a product that performs the same, but at a lower price or a lower cost point, I should say. So that's actually maybe the most important one that we've been able to do for quite some time. And I feel quite comfortable we'll get that with the next generation ASICs coming within not too distant future. Then we have also been able to take a lot of costs out on service delivery, and there I think there are more costs to be taken out. So I think we have, you know, it doesn't come easy. It doesn't come, in that sense, for free. But I do think there is a number of... areas we can leverage to protect a healthy gross margin longer term. That's why I feel we have reached a different level of performance and control on the cost side. And you know, component prices have varied already now. So we've been able to handle that in many different ways. And our ambition is clear. That's what we intend to do going forward as well. And we have a number of degrees of freedom in what we actually do to manage the margins. Perfect. Thank you.

Thanks for the question, Andreas. Moving to the next question, please. The next question is going to come from the line of Richard Kramer at Arate. Please go ahead, Richard.

Thanks very much, Borya. You mentioned the early stages of physical AI, which would involve greater mobile connectivity. But can you point to anything within your portfolio which could provide a material uplift to group sales growth, especially addressing the sort of data center AI spending boom, given that enterprise remains fairly small in the mix? Thanks.

Yeah, Richard, that's a good question. We're not going to see any sales directly from data center expansions right now. Our exposure to AI is more going to come from the applications. When you start to see inference play a very different role. So we may not be the front runner on the AI wave, but we are rather the longer term, I would say it's one of our key drivers of traffic in the networks. And the connectivity will thus look different. That's why I believe the exposure we have is going to come more from that traffic development, from AI moving into implementations, but it's also going to come from AI in enterprises. And here we start to see some front-runner industrial companies, still small, but actually picking up demand in two areas – enterprise connectivity, i.e. wireless solutions, or, as a matter of fact, in interest for network APIs and embedding that into enterprise use cases. So I don't want to promote that we have any exposure to data centers. So that wave is going to go. We're a little bit behind that. I guess in the, I don't know what to call it, but kind of benefiting from the overall migration of applications towards AI. Okay, thanks.

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

Thanks for taking my question. Good to see the cloud software services EBITDA margin expanding to around 12% on a 12-month rolling basis. I wanted to ask, is there any reason why the margin expansion in this segment should not continue, given that growth seems to be led by very margin-accretive 5G core demand? Thanks.

It's a good question. I think what we have said is that the first aim here is to reach a stable double-digit margin, and then we work from there. And I think we need to remember that cloud software is also connected to the flat-ran market. there is but still there is an underlying growth that we are able to capture with the grow in the core area which is good i think and we have managed to show that we are having a good market position there so we continue to work on that so we don't promise we guide quarter per quarter as you know but we feel we have reached the stable level now in a good way in the company

Thanks, Felix. Moving to the next question, please. The next question will come from the line of Ulrich Ratha at Bernstein. Please go ahead, Ulrich.

Thanks very much. There's more question for last place. You talked about how you have immunized margin to the foreign exchange moves by matching cost and revenue better. Can you sort of talk about that a little bit more? And I'm wondering in particular two areas here. One is to what extent are you still benefiting from hedging that could roll off and produce an incremental headwind if the FX rates stay at where they are? And also, with the current level of FX matching in cost and revenue, what would be the effect of a weakening Swedish crown, would that actually correspond to a material margin driver for you or not? Thank you.

I think we need to separate between gross margin and EBITDA margin here. On the gross margin, we are fairly balanced in the currency baskets, whereas in the OPEC side, we are much more exposed with the Swedish SEK margin. ratio there so it's higher there so we get more of an impact from that end so i think from so that's what's impacting so to say the fx mix that we have so i think that and if there is a significant change you will see that more impacting a beta rather than ghost margins in that sense And then when it comes to hedging, we have some hedging, but rather low levels, and they are coming out. So it should not be a big impact going forward.

Thank you very much. Thanks, Ulrik. Moving to the next question, please. Next question will come from the line of Sandeep Deshpande at JP Morgan. Please go ahead, Sandeep.

Yeah, hi. Could I ask, I mean, you've seen this weakness in North America. In terms of your exposure to 5G and 5G core outside North America, do you see there is potential for significant upgrades? I mean, that is the market hasn't changed. shifted as much to 5G or 5G core over the last few years as it has in North America. And that's the growth outside North America could compensate if North American growth over the next couple of years is not going to be as strong. And the question I'm asking here is that historically outside North America, they have not been as keen to quickly upgrade to next generation technologies like 5G or 4G even before that. So, I mean, how do you see that progress, I mean, at this point?

Barry, maybe we ask you to take that one.

Yeah, that's a very good question. You know, North America have been a front-runner market You know, it's still not fully migrated to 5G SA even there. The only market which is fully 5G SA actually is China. So we see that that's where the market will go. We see a number of operators today increasingly focused on migrating from 5G non-standalone into 5G SA and then 5G advanced. It's still largely a work in progress. So, you know, if you try to give some sort of statistics, maybe a quarter of the operators have some sort of 5GSA, and the 5GSA of scale is fewer than that. So I would say that's actually one of the major opportunities for our industry. And it's two things. Of course, it's an upgrade cycle for us. But I think more importantly, it will allow the operators to start offering differentiated services. So you can have, you know, network slicing, dynamic network slicing, for example, can happen when you have 5G standalone. So the way we think about this is it's actually one of our more positive opportunities from a medium-term perspective as companies or operators upgrade. And the way to think about this is in order to prepare your networks for 6G that eventually will come, you need to actually migrate through 5G standalone into 5G advanced, and then have built the architecture that's prepared for 6G. So I see, while not everyone has transitioned today, they will need to go that way. So it will provide... an interesting opportunity for us as operators upgrade. So that's why we've invested in positioning as well on 5G core. And we're now starting to see growth coming through on 5G core. So it's actually, I think, a net net positive for us as we move forward.

Thank you. Thanks for the question, Sandy. Moving to the next question, please. Next question is coming from the line of Daniel Djerberg at Handelsbanken. Please go ahead, Daniel.

Thank you, Daniel, and good morning, Maria and Lars. A question. I was quite impressed by the network across margins, given the geographical mix with large deployment in India and also growth in Latam. It could indicate that it was capacity-heavy, and if that is correct, should we expect more coverage and hardware Deployment in second half in India, for example, and Japan are less supportive on gross margins. And then also we have the cost inflation that you mentioned.

Maybe, Barry, we can start with your thoughts on those two markets more broadly and Lars on the margin.

Yeah, I know we were often talking about CAPAG. coverage and capacity before. I would say what we have tried to do is actually to reduce the dependence to that as well. So When you look at this, there is always an element of higher margin software sales versus hardware, but it's less important going forward. So the comment here is probably to say that there is a tad more capacity, but it's not meaningfully impacting the profile here.

Yeah, I think it covers it well. I think the outlook you see for the Q2 here for networks is 49 to 51. And that is what we see now based on the product portfolio and product deliveries and market mix we foresee now. So I think signals rather stability as well.

Super. Thanks for the question, Daniel. Moving to the next question, please. The next question is coming from the line of Sebastian Stabovitz at Kepler Chauvin. Please go ahead, Sebastian.

Yeah. Hi, everyone, and thanks for taking my question. On the defense market opportunity, you've been talking about $10 billion opportunity in that market. Now you are talking about some trials happening currently in Italy. When do you expect the opportunity to materialize and generate first significant revenue? It is an opportunity over three, five, or beyond five years just to understand a little bit the phasing and the ramp of this technology. Thank you. Sure.

Barry, your thoughts on the overall opportunity? I actually think the opportunity is more near term. It's very hard to judge, but I think it's a very good question and your perspective may be as good as ours. What we see, though, is a very near term, very strong need in the market for You know, modern warfare involves a lot of AI and actually heavy need of communication and connectivity, therefore. So we see that this is much more of a near-term opportunity. I wouldn't say five years plus. It's more kind of a mid- used three years, for lack of a better word, before this opportunity. But if you start to think about, take a critical site, it could be a sports arena or a nuclear power station or an energy generation station or something like that. The threat from drones are pretty much today. So when you start to think about when is the technology needed from a risk perspective and protection perspective, it's actually a near-term risk. So as I know it, or as I see it, I think we need to tackle that need when the market is there. So I... Had I wished we would have started a few years earlier, yes. But I think we're in pretty good shape to start to see these opportunities materialize over the next even, you know, maybe 9, 12, 18 months opportunity. And then they start to scale at two, three years. So I'm quite excited about these opportunities because the communication network and the scale we have makes our solutions rather competitive. So I'm actually, I'm thinking this is, our ambition is that this is a nearer term opportunity than five plus years. But then putting an exact number on it, I can't to be honest, but the reception we get from customers is very positive.

Thank you. Thanks for the question, Sebastian. Moving to the next question, please. The next question is coming from the line of Sammy Salkomedes at Danska. Go ahead, Sammy.

Hi. I still wanted to go back to the rising input cost that we discussed earlier in the call. I have a two-part question. Firstly, can you elaborate on your current operator agreements allow you to raise prices if needed? Do they, for example, cater for above normal cost inflation? And then secondly, when you look at your operator customers, are you seeing rising energy costs to have an impact on their behavior and potentially investment plans for the year?

Lars, should we start with you first?

If we start on the customer side, it depends on the renewal cycle of contracts that we have with customers, and that can vary a bit in different markets and different customers. But there is still an opportunity, I think, to take this discussion because these are a bit exceptional times, so we need to take this in a good commercial discussion with our customers. And when it comes on the energy impacts on operators, I think that is an important part, the TCO, where our products with the right investments they do, they can drive down their TCO. So I think in that sense, it helps our competitive advantage in the market. And we have not seen any big impacts yet. But of course, if there is a prolonged situation with high energy costs, that could have an impact. But we have not seen that. And I think we should also remember the revenue base of our customers is very stable. So we have seen this historically. And normally, our industry or our customers are quite resilient over time.

I don't know if you want to add more on that. You've captured it. What we see is an increasing focus on energy efficiency in discussions with customers. So I think this will be a topic And as Lars said, it kind of goes both ways, right? It's an opportunity because they need to actually upgrade some of the old equipment. And they actually need to move towards modern. And at the same time, they get a bit tougher on their own cost position. So it kind of sits in that position. I don't know what that translates to. But that's kind of the situation, right? The interesting thing is that when we now are around, we start to see customers talking about how you actually phase out old technology. And we're even starting to see customers in some markets talk about how do we phase out 4G and actually migrate to 5G and in a way then have only 5G and 6G. Of course, 3G being phased out in most regions, except Europe possibly, that will also support energy efficiency. So we're actually, this energy squeeze leads to a bit of a, when you asked about changing behavior, yes, it is a change in behavior, but much more focused on how do I get on the latest technology curve that helps me with lower process costs. And that will include phasing out 2G, 3G and soon 4G in some markets.

Thanks. Thanks for the question, Sami. Moving on to the next question, please, which is coming from the line of Oliver Wong at Bank of America. Please go ahead, Oliver. Your line's open.

Hi, good morning, gentlemen. Thank you for letting me ask a question. I wanted to focus on perhaps the cost from, you know, things like logistics and transportation since, you know, given ongoing global geopolitical events. You know, it seems like, you know, there could be, you know, some impact on that. And also, you know, perhaps on the instability of the supply chain, you know, could that be a risk to you? So yeah, it'd be great to kind of, you know, discuss about the logistics and transportation costs. How is that relative to, you know, perhaps the impact from rising memory in terms of, you know, potential headwinds going into the year? Thanks.

When it comes to logistics and transportation, we have seen some impact now. But in the total scheme of our cost base, it's limited. So we should remember that. I think it's important. And especially now in Q1, we had some additional costs with the Mideast conflict where we have to... do some rerouting, changing transportation lines, etc., utilizing then our flexible production system and supply chain. So I think, yes, it has given some, but we have been able to make sure that we deliver to our customers, which is, at the end of the day, most important for us. so i think and that ties a little bit into your supply chain question there we have a rather well distributed supply chain today to manage disturbances we have proven that i think during the pandemic we have proven that now during last year on the tariff side etc so we continuously work with this and and try to mitigate when things are happening and of course as we have said on the

tariff side euro we are we cannot guarantee that we are immune of course but we are i think managing it pretty well the fair comment is also that we have a you know distribution hub in the middle east so we've been impacted for sure already and been able to to to mitigate that fully by leveraging the flexible supply chain. So I think we'll have to focus on managing it, monitoring and managing it as well as we can. Very clear. Thank you very much.

Thanks for the question, Oliver. We have time for one final question this morning. We can move to the next. So follow-up question from Daniel Djerberg at Handelsbanken. Please go ahead, Daniel.

Thank you very much, Daniel. I know I should ask your customer this, and I will, but Latin America saw good growth in networks, and this is a geography with really tough competition. To me, your Radio Access Network portfolio is more competitive to Pearson for many years, which you showcase at Mobile World Congress. And can you give, or obviously, Can you give any examples of this, if it's correct, and how we should think about markets like Latin America, Sub-Sahara, Eastern Europe, where you have tough Chinese competition? Thanks.

You know, the... It's a good question. And the reason why I'm hesitating is more that we get into specific customer situations. And I don't want to talk about that for the simple reason that if I would be our customers, I wouldn't like us to talk about it because it may be my competitive positioning in the market. that I'm revealing. That's why I think it's inappropriate for us to talk about customers. But what I can say is that we've We think the competitor we have to always beat is one of the Chinese. They're, of course, very strong. I have no doubt about that. But we can see that we can actually go head-on with our product portfolio thanks to the strong performance, the strong in-field performance we see on quality benchmarking when we compete with them. We're We come out well. You can see that in all the, whether it's, you know, umlaut test or open signal or whatever. We come out well in that comparison. We perform also very well on energy once you're in the field. And it's because the way we have focused on developing the products, it's actually dedicated not to lab trials, but more to in-field performance. So operators that look at that total perspective there we can compete, right? And we've seen that in Latin America. We see it some... Africa is maybe the hardest market to compete and you've seen us fight there. But at the end of the day, we remain competitive and it depends on operator preferences as well. We certainly, in Southeast Asia... win market share when we compete also with the Chinese competitors.

Perfect. Thank you.

Thank you. So that comes to the end of the Q&A session. Thank you for joining us. Thanks, Pereira and Lars as well.