Telefonaktiebolaget LM Ericsson (publ)

Hello, everyone, and welcome to the presentation of Ericsson's second quarter 2026 results. Joining us today, we have Birger Ekholm, our president and CEO, and Per Naviger, head of networks, who will be assuming the CEO role in October. And a little later, Lars Sandström, our chief financial officer, will also join us. As usual, we'll have a short presentation followed by Q&A. And in order to ask a question, you'll need to join the conference by phone. Details can be found in today's earnings release and on the Investor Relations website. Please be advised that today's call is being recorded and that today's presentation may include forward-looking statements. These statements are based on our current expectations and certain planning assumptions, which are subject to risks and uncertainties. Actual results may differ materially due to factors mentioned in today's press release and discussed in the conference call. We encourage you to read about these risks and uncertainties in our earnings report as well as in our annual report. I'll now hand the call over to Buria and to Per for some introductory comments.

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

And it's, of course, a great honor to take over as the CEO of the company from October 1st. As Börje says, I have been in the company, in the industry for quite a few years. I truly enjoyed being back in the networks business where I spent a lot of my career. So I was heading up the larger segment now for a year and a half. I have to say, Börje, you handed me quite a challenge when we formed cloud software and services. It's great to see that that business is now progressing. I also think we are at a very interesting point in time now with AI really coming in in a big way. Of course, how we build our products, how we deliver to our customers, and of course all the traffic we're going to see on AI in our networks. And I also have to say a big, big thank you to Ljuborje. You're handing over a company in a very strong position, strong on the market position, strong in the portfolio. And it's truly been a privilege working with Ljuborje and great fun as well. And of course, you and I will now meet a lot of customer partners to make sure we have a smooth transition here. And then, of course, I'm looking forward also to engaging with everyone in this forum going forward.

So, yeah, thank you. You'll have a lot of exciting quarterly calls ahead of you. But thank you, Per. So Per, of course, has been part of my leadership team for many years, but I think it's fair to give him some time to chart out the strategy for the future. So he will not take part of the Q&A today and therefore save your questions for the future quarterly reports when he can talk much more about the future. But now, let's look at today's results. I would say overall we executed well in the second quarter and we saw continued strong margin delivery. Looking at the top line, we saw a 1% organic decline, but underlying it's actually a slight growth if we adjust for the back royalty portion of the IPR settlement last year. Gross margin came in at 48%, which is actually up two percentage points if we exclude the benefits from the one of IPR settlement last year. EBITDA margin came in at 13.1%, which is in line with last year's results. All in all, these results demonstrate the strength of our portfolio, our disciplined execution, and how we strengthen the company operationally. The actions we've taken over the recent years have made Ericsson much more resilient and is actually enabling us to sustain healthy margins in varying market conditions. The external environment continues to be rather challenging as the AI boom is driving up component costs. So we are taking, I would say, two sorts of actions to mitigate this. First, we do some near-term adjustments, accelerating costs out, but we're also increasing sales with product substitutions or sales of additional products. But we're also started to take longer term structural actions, which of course include raising prices where appropriate. Of course, first step is to adjust on new tenders, but we're also implementing price increases with current customers. So discussions to broaden price increases are ongoing, and we're also redesigning products. But all of these actions will help us mitigate longer-term effects from component inflation. While we're not immune to these external factors, we're in a strong position strategically and operationally. And to make sure that we keep this position, we're continuing to strengthen our technology leadership in our core mobile networks business. This includes continued R&D investments in our leading high-performing programmable networks. But building on our strong position in mobile networks, we're also pursuing a number of growth initiatives. Of course, this includes what we do on enterprise with enterprise connectivity, Our API business network powered solutions, but also the growth opportunities in mission critical networks and different defense applications. And here we continue to see good progress. Our strategy over the last few years has focused on positioning us for the next phase of AI adoption or the AI race. And that is when AI moves into the industrial and physical world. In this world, connectivity will be more important and uplink will dimension mobile networks. But we will also see increasing demand of low latency and actually this is what 5G was designed for. So I would say Ericsson today is well positioned to capture this next wave of AI-driven connectivity. With this, I'd like to leave the word over to Lars to go through some of the numbers more in detail.

Alright, thank you Berger. I will begin with some additional comments on the group before moving on to the segments. If you look at net sales in Q2, they totaled 52.7 billion, with organic sales declining 1% year on year. Excluding the one of IPR settlement in Q2 2025, organic sales grew by 1%. Sales in all market areas grew with the exception of Americas, which reported a slight decline of 1%. In Americas, sales grew in Latin America, but were lower in North America. reflecting strong deliveries in the prior year period. In the other market areas, sales were driven by Japan, India, the Middle East and Africa. Network sales declined in two of the four market areas. Network sales grew in Northeast Asia, driven by Japan and Southeast Asia, Oceania and India, driven by timing of deliveries in Southeast Asia. Europe declined due to the completion of modernization projects in some markets, while Middle East and Africa grew. North America declined, partly offset by higher sales in Latin America. Cloud software and services, they grew in all market areas. Enterprise delivered its third quarter of organic growth. Reported sales decreased by 6%, impacted by a negative currency effect of 1.8 billion. IPR revenues were 3.4 billion down by 1.5 billion year over year. This was mainly due to the one of settlement in Q2 2025. The current IPR run rate is approximately 13.5 billion, including the agreements signed in July 2026, which will benefit from Q3. Adjusted gross income was 25.5 billion, with a negative currency impact of 0.8 billion. Adjusted gross margin was 48.4%, a slight increase from last year with improvements in networks and cloud software and services. On the cost side, operating expenses excluding restructuring charges dropped to 19 billion, around 1 billion lower year over year, driven by cost reductions, currency, as well as the divestment of iConnective. wage pressures continued to be offset by cost reductions driven by headcount as well as efficiency measures. And there was limited financial impact in Q2 from the component prices helped by our resilient supply chain. The EBITDA margin was 13.1% in line with last year and adjusted EBITDA was 6.9 billion down by 0.5 billion. The beta was impacted by a negative currency effect of 0.6 billion. And Q2 2025 also benefited from the IPR settlement and included iConnective. Excluding these, adjusted beta would have improved by 1.8 billion. Cash flow before M&A was 0.4 billion, driven by earnings and impacted by higher inventories. I will come back to this later. So let's move to the segments. In networks, reported sales decreased by 8% year-on-year to $33 billion, with a negative currency impact of $1.2 billion. Organic sales decreased by 4%, mainly reflecting IPR one-offs last year. Organic sales grew in Northeast Asia and Southeast Asia, Oceania and India, while sales declined in Europe, Middle East and Africa and Americas. Networks adjusted gross margin was 50.4%, stable compared to last quarter, and adjusted gross income decreased to 16.6 billion due to the lower sales and the negative currency impact. Adjusted beta was 5.8 billion, down from 6.5 billion last year, mainly impacted by a negative currency effect of 0.5 billion. Adjusted beta margin was 17.7%, down slightly year on year, and this was partly due to the IPR one off in Q2 last year, and partly due to lower sales, including the negative FX impact. Moving to segment cloud software and services. reported sales increased by 3% to 14.7 billion, including a negative currency impact of 0.4 billion. Organically, sales grew by 5% with growth in all market areas, and growth was broad-based across the commodities. Adjusted gross margin came in at 44.1%, an improvement from 43.2 last year, supported by improved delivery efficiency. Adjusted gross income increased to 6.5 billion. Adjusted EB increased to 1.8 billion with a margin of 14.2%. Lower operating expenses benefited from efficiencies and currency. And looking at the right hand graph, the rolling four quarter adjusted gross margin was around 44% and adjusted EB margin around 13%, a new high level. Then going to enterprise, reported sales decreased by 19% impacted by the sale of iConnective and currency. On an organic basis, enterprise grew by 3% with growth in global communications platform and enterprise wireless solutions. Adjusted gross margin declined to 50.9%, reflecting the impact of the divestment of iConnective and the change in product mix. Adjusted EBITDA landed at minus 0.8 billion, where the impact of the divestment of iConnecti was partly offset by cost reductions. EBITDA improved compared to Q1, benefiting from lower operating expenses. Q1 was also impacted by some small negative one-offs. Turning to free cash flow, which was 0.4 billion before M&A in the quarter, Cash flow generation was supported by earnings, but impacted by increased operating net assets, mainly inventories. As you might remember, we had a very strong Q1 due to a stronger than normal seasonal reduction in operating net assets. And in Q2, we had a build-up in inventories, in part preparing for planned Q3 delivery. We delivered a cash flow to net sales of 12% for the rolling four quarters at the upper end of our 9 to 12% target. Net cash decreased sequentially by 8.3 billion to 59.8 billion, reflecting dividend payments and share repurchase. Next, I will cover the outlook. Global uncertainty remains elevated, given the broad geopolitical and macroeconomic environment, including the global semiconductor situation. As mentioned last quarter, we are not immune to these disturbances. As a matter of fact, input costs increased further in Q2. The financial impact from this will start to build up gradually in the coming quarters. We are taking near term actions across the businesses, including commercial measures, for example, product substitution, as well as supply chain actions and targeted cost initiatives. At the same time, we are starting to implement longer-term structural actions that will be needed to more sustainably offset these impacts. We are adjusting pricing in current tenders and discussions to broaden price increases with current customers are continuing, as Börje already mentioned. Turning to the Q3 outlook then. The outlook assumes the exchange rate specified in the report. And for networks, we expect sales growth to be above the three year average quarter on quarter seasonality. For cloud software and services, we expect sales growth to be broadly similar to the three year average quarter on quarter seasonality. We expect networks adjusted gross margin to be in the range of 48 to 50 percent, down slightly compared to Q2 due to a change in mix. We expect also a higher share of networks rollout projects in Q3. Restructuring charges for 2026 are expected to be at an elevated level with a fairly large part already seen in the first half. With that, I hand back to you, Abaya.

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

Thanks, Birya. We'll move on to Q&A now with Birya and Lars. To ask a question, please, could you press star 1 and 1 on your phone and wait for your name to be announced? If you're streaming the webcast, could we ask that you mute the audio on the webcast while asking a question to avoid any feedback? And as usual, if I can request one question per participant, please, so we have time to hear from as many of you as possible. Operator, we're ready for the first question. Thank you. The first question today is going to come from the line of Simon Granath at ABG. Please go ahead, Simon.

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

Thanks, Simon, first of all. No, it's a good question. We're doing the revisions because what we are starting to see is an emerging demand for uplink that is I can't really point to exactly what type of applications. It's a broad base. It's really starting to see that the demand for AI is starting to shape traffic. That's why I think there is an upside case here, which will be much more positive for our industry when upplink becomes what I mentioned, the networks going forward. So I think there is a real case to start to be a bit more optimistic about our industry and the RAN market. At the same time, I want to also say, when we plan and for our own planning perspective, we like to think it is rather flattish. Because when the demand happens, we need to make sure that we have the right products, the right cost structure, and not kind of build on speculation in advance of that happening. So when you ask the question, yes, I'm personally very excited about that future, but I want us also to be disciplined in the way we execute and the way we plan our cost structure. And therefore we're cautious. So I think when you look out in a few years' time, it's going to be better to take this discussion. You know, the purchase decisions ultimately will be in the hands of our customers. But when they see the demand happening, I also think they will start to buy. But, you know, until then, let's continue to plan for a flat dish market.

Thank you so much.

Thanks for the question, Simon. Moving to the next question, please, operator. The next question is going to come from the line of Erik Lindholm, Roger Stahl from SCB. Please go ahead, Erik.

Good morning. Thanks for taking my question. So I'll start with perhaps a question on GPUs in the radio unit. It's been a hot topic recently. NVIDIA revealed its entry into this area and you obviously operate mainly on Ericsson silicon which is purpose-built. Can you elaborate a bit perhaps on the benefits and the possible risks of going with purpose-built and how capable do you think GPUs are as an option in radio units? Thanks.

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

All right, thank you and good luck on your future endeavors. Thank you.

Thanks for the question, Eric. Moving to the next question, please. The next question is going to come from the line of Sebastian Stabovitz at Kepler Shero. Please go ahead, Sebastian, your line's open.

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

I can take the latter part. Yes, we have done that. It's not impacting Q2, but it will gradually be visible, those type of renegotiations. Of course, I think it's also important to remember we have rather long-term contracts in the industry. So when you enter into these type of discussions, you need to be thoughtful as well. So it takes a bit of time. But where we have done it, we're actually seeing that customers also understand that we need to find ways to share the burden of the industry. If this industry will be competitive going forward. So I actually think we have the opportunity ahead of us here to do more. And we of course take all the other actions, product substitutions, make sure that we design products in a, call it a way that minimizes the cost inflation. So we're trying to do all these. I think we're not going to be immune. We weren't immune from tariffs either about a little more than a year ago, but you also know that it didn't at the end of the day impact. Can't guarantee that now, but I think we see a lot of mitigating actions that will help us

I think when it comes to the cost impact, we don't share that kind of details, but as we said, already coming out of Q1, we will see gradual impact during the second half and into next year. And we are doing mitigation activities already now. So how big the impact will be depends on a little bit the facing of the cost increases that are coming and the facing on the mitigating activities. We can do quite a bit in short term, but then in the longer term, it's really about how we cannot take this all alone. It's really on what we can do together with customers here and to really ensure we get the best performing solution to the customers, but also at the right price point.

Okay, thank you. And congrats to Berger for all your career at Ericsson. Thank you.

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

Thank you. Good morning, everyone. First of all, Berger, congratulations. And also, I know you will miss these calls tremendously, but we're only a if you want further questions. And secondly, further on the gross margin and the other side of the equation, the volumes that you see will increase going forward. How should we see those rollout projects? Will they be for longer and therefore have an impact on the gross margin for longer? What's the pattern usually look like in situations like this? Thanks.

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

Thanks for the question, Andreas. Moving to the next question, please. Next question will come from the line of Richard Kramer at Arete. Please go ahead, Richard.

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

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

Okay, thanks, and good luck. Thank you.

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

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

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

I think when it comes to impact from cost, we will see some already in Q2, but as we said there on the mitigating activities, we see that we will have those supporting offsetting that during the third quarter. Then it's a bit it is an increase in cost pressure that we have so That will of course have put a bit pressure more going coming out of the year and into next year and there the activities that we are doing Will take a bit the short term they will work with and the longer terms that we will see how that plays out It's really on the discussions that we have in negotiations that we will have Towards customers as well. So that's why it's a bit different in the facing. I

Thank you very much. Thanks, Francois. Moving to the next question, please. Next question is going to come from the line of Jacob Bluestone at BNP. Please go ahead, Jacob.

Thanks, Daniel, and congrats and best wishes to Gloria as well. Just to stay on the topic of the memory cost inflation, can you maybe just explain to us what is actually the mechanism in your current contracts passing on price inflation? So do you have automatic pass-through Or do you have to go back and renegotiate every contract individually?

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

Understood.

Thank you and best wishes. Thank you.

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

Thank you, Daniel, and good morning, Börje and Lars. Börje, thanks for a great contribution and all good meetings during the years. And if you really missed the round discussions, you're always welcome back to Edsbruk where I have a newly refurbished apartment available. Nevertheless, I would go first to or would like to ask on the network gross margin and the guidance here 4850. which, in my view, wouldn't be a bad number given what you talked about here on rollouts and on price inflation and so on. But we also know that you have some kind of IPR catch-up from TransShield here in Q3. So I guess some of the uncertainty today is based on this. How is this impacting this guidance? So should we be even more conservative today after this or given that there is some impact from Transgen in this?

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

Thanks for the question, Daniel. Movinging to the next question, please. The next question is going to come from the line of Sandeep Deshpande at JPMorgan. Please go ahead, Sandeep.

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

It will. The answer to Sandeep is, of course, it cannot be consistently loss-making. Instead, it has to be value accretive to the group, and we clearly have a plan in place that we're executing upon. It comes from a couple of elements, and you already now start to see our Wireless One business to actually contribute, not to reported numbers, but the way we see sales growth on bookings, etc. It's actually quite positive. The challenge in enterprise has been the enterprise quality, the private networks where we've actually not had attractive Ericssondisciplinary.com That we're executing upon it will take a little bit more time, but you will start to see improved performance in the reported numbers You've seen it from q1 to q2 and you see it in continuing throughout the year So clearly the ambition is here to turn this around and make it value accreting in the In the future, I'm not going to put a timeline on it as I'm not the one to deliver on it. So it feels a bit unfair to do. But I would say the plan is in place and we're executing on that. And over time, it should be value creative. Thank you.

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

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

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

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

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

When you look at the inventory build-up here, it's around 5 billion in the quarter. And the majority of that is Finnish goods that is then to be delivered in Q3 and going forward on this phasing, as you mentioned. But there is also a portion of that connected to the higher component cost that we see coming in. But it's not the majority, it's a smaller part of the 5 billion that is connected to the component cost increases. And this will continue a bit, so that will be the challenge going forward here to really address the working capital and capital turnover rate here in the coming quarters. But it's important also that we have the right levels here so we have ability to deliver on time to our customers and the commitments we have with our customers.

Thanks for the question, Felix. Movinging to the next question, please. Next question is going to come from the line of Janadin Menon at Jefferies. Please go ahead, Janadin.

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

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

Thanks for the question, Jonathan. Moving on to the next question. The next question will come from the line of Stefan Hero at Odoo. Please go ahead, Stefan.

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

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

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

Erik, thank you very much. Great. Thanks for the question, Stefan. And I see we are just coming up on time, so we will need to conclude today's conference call there. Thanks for joining us. Thanks, Burya. Thanks, Lars, and also to Per.

Thanks, everyone, and good luck in your work.