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Daniel Morris: Hello, everyone, and welcome to the presentation of Ericsson's Second Quarter 2026 Results. Joining us today, we have Börje Ekholm, our President and CEO, and Per Narvinger, Head of Networks, who will be assuming the CEO role in October. A little later, Lars Sandström, our Chief Financial Officer, will also join us. As usual, we will have a short presentation followed by Q&A. In order to ask a question, you will 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 will now hand the call over to Börje and to Per for some introductory comments. Börje Ekholm: Thanks, Daniel, good morning, everyone, and thanks for joining us today. Before we get into the quarter, I wanted to take a moment to talk about the leadership transition we announced in June. 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 have 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 is really the quality of our people that defines our success. It has been a privilege and honor to be a team member of Team Ericsson for the last almost 10 years. I am 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. Before going into some key takeaways from the quarter, I would like to introduce Per Narvinger, who will be succeeding me as CEO, as Daniel said and you all know, and he can join me today. Per has spent almost 30 years at Ericsson and brings a broad experience across the telco industry. He has 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. 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. What has actually impressed me is really his ability to execute. Yes, you can rest assured he consistently delivers on what he says he will do. Simply put, he's an excellent choice to lead Ericsson into the next chapter. Over the next two, three months, Per and I will spend a lot of time together working closely to ensure a smooth transition. Please, Per, I leave the word over to you. Per Narvinger: Thank you, Börje. It's of course a great honor to take over as 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. I was heading up the largest 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 gonna see on AI in our networks. I also have to say a big thank you to you, Börje. You're handing over a company in a very strong position, strong on the market position, strong in the portfolio, and it's truly been a privilege working with you, Börje, and great fun as well. Of course, you and I will now meet a lot of customer partners to make sure we have a smooth transition here. Of course, I'm looking forward also to engaging with everyone in this forum going forward. Yeah. Thank you. Börje Ekholm: Yeah, you'll have a lot of exciting quarterly calls ahead of you. Thank you, Per. Per, of course, has been part of my leadership team for many years. I think it's fair to give him some time to chart out the strategy for the future. 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. 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. 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 2 percentage points if we exclude the benefits from the one-off 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 it's 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. 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. We're also started to take longer-term structural actions, which of course, include raising prices where appropriate. First step is to adjust on new tenders, but we're also implementing price increases with current customers. Discussions to broaden price increases are ongoing, and we're also redesigning products. 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. 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. Building on our strong position in mobile Networks, we're also pursuing a number of growth initiatives. 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. 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. We will also see increasing demand of low latency. Actually, this is what 5G was designed for. I would say Ericsson today is well-positioned to capture this next wave of AI-driven connectivity. With this, I like to leave the word over to Lars to go through some of the numbers more in detail. Lars Sandström: All right. Thank you, Börje. 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 SEK 52.7 billion with organic sales declining 1% year-on-year. Excluding the one-off IPR settlement in Q2 2025, organic sales grew by 1%. Sales in all market areas grew with the exception of Americas, which reported a slight decline of 1%. In Americas, sales grew in Latin America, but were lower in North America, reflecting strong deliveries in the prior year period. In the other market areas, sales were driven by Japan, India, the Middle East and Africa. Networks sales declined in two of the four market areas. Networks sales grew in Northeast Asia, driven by Japan and Southeast Asia, Oceania and India, driven by timing on 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 negative currency effect of SEK 1.8 billion. IPR revenues were SEK 3.4 billion, down by SEK 1.5 billion year-over-year. This was mainly due to the one-off settlement in Q2 2025. The current IPR run rate is approximately SEK 13.5 billion, including the agreements signed in July 2026, which will benefit from Q3. Adjusted gross income was SEK 25.5 billion, with a negative currency impact of SEK 0.8 billion. Adjusted gross margin was 48.4%, a slight increase from last year with improvement in Networks and Cloud Software and Services. On the cost side. Operating expenses excluding restructuring charges dropped to SEK 19 billion, around SEK 1 billion lower year-over-year, driven by cost reductions, currency, as well as the divestment of iconectiv. Wage pressures continued to be offset by cost reductions driven by headcount as well as efficiency measures. There was limited financial impact in Q2 from the component prices, helped by our resilient supply chain. The EBITDA margin was 13.1%. Adjusted EBITDA was SEK 6.9 billion, down by SEK 0.5 billion. EBITDA was impacted by a negative currency effect of SEK 0.6 billion. In Q2 2025 also benefited from the IPR settlement and included iconectiv. Excluding these, adjusted EBITDA would have improved by SEK 1.8 billion. Cash flow before M&A was SEK 0.4 billion, driven by earnings and impacted by higher inventories. I will come back to this later. Let's move to the segments. Networks, reported sales decreased by 8% year-on-year to SEK 33 billion, with a negative currency impact of SEK 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 SEK 16.6 billion due to the lower sales and the negative currency impact. Adjusted EBITDA was SEK 5.8 billion, down from SEK 6.5 billion last year, mainly impacted by a negative currency effect of SEK 0.5 billion. Adjusted EBITDA 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 SEK 14.7 billion, including a negative currency impact of SEK 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 SEK 6.5 billion. Adjusted EBITDA increased to SEK 1.8 billion with a margin of 14.2%. Lower operating expenses benefited from efficiencies and currency. Looking at the right-hand graph, the rolling four quarter adjusted gross margin was around 44% and adjusted EBITDA margin around 13%, a new high level. Going to Enterprise. Reported sales decreased by 19%, impacted by the sale of iconectiv 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 iconectiv and a change in product mix. Adjusted EBITDA landed at SEK -0.8 billion, where the impact of the divestment of iconectiv 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 SEK 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. In Q2, we had a build-up in inventories, in part preparing for planned Q3 delivery. We delivered a cash flow to net sales of 12% for the rolling four quarters at the upper end of our 9%-12% target. Net cash decreased sequentially by SEK 8.3 billion to SEK 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. The outlook assumes the exchange rate specified in the report. 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%-50%, 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, Börje. Börje Ekholm: Thanks, Lars. Ericsson enters the future from a position of strength. With the external environment continuing to be challenging, I'm very happy that Ericsson today is in a great spot and leading the industry in the AI era. The next phase of AI will require high-performing mobile connectivity to scale. We expect this to be a key driver for our industry over time. With our leading portfolio, Ericsson is well-positioned to capitalize on this future and this future development. I believe this is an exciting time that can bring Ericsson back to growth. As this is my last earnings call as CEO of Ericsson, and possibly the last as a CEO, I'd like to thank all our customers. Ericsson has long believed that connectivity is a basic human need, and together with you, our customers and partners, we've continued to expand mobile connectivity and 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. Daniel Morris: Thanks, Börje. We'll move on to Q&A now with Börje and Lars. To ask a question, please could you press star one and one 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. 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. Simon Granath: Morning. Initially, just congrats on a very successful career at Ericsson, Börje. Best of luck in the future. On to my question, which is a bit broader. I have been in detail tracking your mobility report and note that you have finally made some positive revisions on data traffic estimates after several years of downgrades. Could you give us your perspective of demand for RAN in light of this, balancing it with the introduction of uplink-related applications, and also the fact that Dell'Oro still only expects the market to grow 1% per year for the foreseeable future. Is the latter conservative in your view? Thank you. Börje Ekholm: Yeah. Thanks, Simon, first of all. No, it's a good question. We're doing the revisions because what we are starting to see is an emerging demand for uplink. 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 uplink becomes what dimensions the networks going forward. 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. When the demand happens, we need to make sure that we have the right products, the right cost structure, and not build on speculation in advance of that happening. 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. Therefore, we're cautious. I think when you look out in a few years' time, it's going to be better to take this discussion. The purchase decisions ultimately will be in the hands of our customers. When they see the demand happening, I also think they will start to buy. Until then, let's continue to plan for a flattish market. Simon Granath: Thank you so much. Daniel Morris: 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-Röjestål from SEB. Please go ahead, Erik. Erik Lindholm-Röjestål: Yes. Good morning, Börje and Lars. Thanks for taking my question. 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. 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. Börje Ekholm: Yeah. I think, first of all, it's actually, in a way, confirmation of the importance of AI in the RAN, right? We start to see other players wanting to enter here with GPUs. 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. We have picked a strategy of being, in that sense, agnostic from a hardware point of view. We can run our RAN stack on being an x86 or a GPU, or our purpose-built silicon. 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. Where this market is going to end up is always a bit uncertain. We see a demand for that compute in the radio going forward that we can offer with the purpose-built. As I said, our RAN stack is agnostic, so we can be on what type of infrastructure ultimately wins. 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. There is no doubt there is room for the purpose-built, and then how it's going to look like over time. 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. I'm convinced we are at the beginning of that journey, and we are determined to lead like we are today. Erik Lindholm-Röjestål: All right. Thank you, and good luck on your future endeavors, Börje. Börje Ekholm: Thank you. Daniel Morris: Thanks for the question, Erik. Moving to the next question, please. The next question is going to come from the line of Sébastien Sztabowicz at Kepler Cheuvreux. Please go ahead, Sébastien. Your line's open. Sébastien Sztabowicz: Yeah. Hi, everyone, and thanks for taking my question. Could you please quantify the component cost inflation impact on your Networks gross margin for this year? What do you expect in terms of impact? Regarding 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. Daniel Morris: Maybe Börje, starting with you with the discussions and then Lars, the final. Börje Ekholm: Yeah, I can take the latter part. Yes, we have done that. It is not impacting Q2, but it will gradually be visible, those type of renegotiations. Of course, I think it is also important to remember we have rather long-term contracts in the industry. When you enter into these type of discussions, you need to be thoughtful as well. It takes a bit of time. Where we have done it, we are 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. I actually think we have the opportunity ahead of us here to do more. 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. We are trying to do all these. I think we are not going to be immune. We were not immune from tariffs either about a little more than a year ago, you also know that it did not, at the end of the day, impact. Can't guarantee that now. I think we see a lot of mitigating actions that will help us position us well for the future. Maybe you want to take the details, Lars. Lars Sandström: I think when it comes to the cost impact, we do not share that kind of details. As we said, already coming out of Q1, we will see gradual impact during the second half and into next year. We are doing mitigation activities already now. How big the impact will be depends on a little bit the phasing of the cost increases that are coming and the phasing on the mitigating activities. We can do quite a bit in short term, in the longer term, it is really about how we cannot take this all alone. It is 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. Sébastien Sztabowicz: Thank you, and congrats, Börje, for all your career at Ericsson. Börje Ekholm: Thank you. Daniel Morris: Thanks for the question, Sébastien. Moving to the next question, please. The next question is going to come from the line of Andreas Joelsson at DNB. Please go ahead, Andreas. Andreas Joelsson: Thank you. Good morning, everyone. First of all, Börje, congratulations, also, I know you will miss these calls tremendously, but we're only a phone call away if you want further questions. 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. Börje Ekholm: Thanks, Andreas. Yeah, I will truly miss the questions. I try to fill my time with something else instead. I'll figure out if it's equally rewarding. Let's put it that way. That will be hard to beat. Anyhow, it's a good question. There isn't really a typical project, to be honest. If you want to generalize a bit, what we see in rollout projects is the first few quarters tend to be the most challenging. 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. The exactly how the impact is varies. Sometimes, the initial is actually negative. Sometimes it's just less positive below group average margins, so to say. 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. We don't guide per se on margins a year out, right? That's on that purpose. That's why we guide per quarter, and we see this impact in the third quarter. Of course, you also should expect bigger volumes. When you look at the numbers, you have to play a little bit yourself there. I feel quite good about the volume, and then it will be a bit more challenging, short-term on margins. Andreas Joelsson: Perfect. Thanks a lot. Daniel Morris: 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. Richard Kramer: Thanks. Börje, 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. Since 2017, Ericsson's underperformed the NASDAQ-100 by 67% and also underperformed comm equipment indices. You've taken SEK 30 billion of restructuring charges and about SEK 60 billion 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? Is there anything you think, in terms of the strategy you might adjust so that you could tap into this huge wave of spending? Thanks. Börje Ekholm: I think it's a great question, Richard. 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. 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. I think it's a bit too early to decide where we are on that journey when you're before really rolling out AI into the mass applications. Do I think we could have done differently? For sure, we could have. Any other answer would be, I think, inaccurate. That we could for sure have done. 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. We are convinced that we will see AI move into distributed applications. Call it's going to be anything from, of course, glasses. It's going to be humanoids. It's going to be robots. 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. 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. Richard Kramer: Okay. Thanks and good luck. Börje Ekholm: Thank you. Daniel Morris: Thanks for the question, Richard. Moving to the next question, please. The next question is going to come from the line of François Bouvignies from UBS. Please go ahead, François. Your line is open. François Bouvignies: Thank you very much. Good luck for Börje 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. I thought in the past that you did actually very good work on the mixed side rollout versus non-rollout, that the gross margin actually is not that impactful. We have seen that during AT&T rollout phase. We didn't see much impact there. Why is it different this time that the rollout is dilutive again, at least on the gross margin side? 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? Is it fair to say that this pressure is more from Q4 onwards? Because Q3, you don't talk about inflation impact. It's more the rollout mix. Thank you. Lars Sandström: Sure. Börje Ekholm: I can just start on the rollout question. The reality is we're in the project business. Quarterly, it shifts a bit all the time, right? It's a bit larger portion, rollout projects during Q3 that impacts margins. That's what we're guiding for. That will periodically happen. 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. We have always said we have a mixed dependence on products. 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. 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. Lars Sandström: I think when it comes to impact from cost, we will see some already in Q2, but as we said, they're on the mitigate activities. We see that we will have those supporting, offsetting that during the third quarter. It is an increase in cost pressure that we have. That will, of course, put a bit pressure more coming out of the year and into next year. The activities that we're 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 and negotiations that we will have towards customers as well. That's why it's a bit different in the phasing. François Bouvignies: Thank you very much. Daniel Morris: Thanks, François. Moving to the next question, please. Next question is going to come from the line of Jakob Bluestone at BNP. Please go ahead, Jakob. Jakob Bluestone: Thanks, Daniel, and congrats and best wishes to Börje 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? 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. Börje Ekholm: We've been very clear on this over time, Jakob, that we don't have automatic pass-throughs. The reason why our contracts are not designed that way is actually that they are rather long-term, and just because the contract is long-term doesn't mean it's exactly the same products being shipped the whole time. It would simply not be workable to have those type of adjustments in there. That's why the contracts don't typically not include that. Some do, but that's typically very small and much shorter term contracts. There is nothing automatic in this. That's why we talk about the mitigating actions, and you see us take that on a 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. Overall, 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. It shows also our performance that it actually can be done. Jakob Bluestone: Understood. Thank you, and best wishes. Börje Ekholm: Thank you. Daniel Morris: Thanks for the question, Jakob. Moving to the next question, please. The next question is going to come from the line of Daniel Djurberg at Handelsbanken. Please go ahead, Daniel. Daniel Djurberg: Thank you, Daniel, good morning, Börje and Lars. Börje, thanks for a great contribution and all good meetings during the years. If you really miss the raw discussions, you're always welcome back to Edsbruk, where I have a newly refurbished apartment available. Nevertheless, I would like to ask on the net worth gross margin and the guidance here 48%-50%, which in my view wouldn't be a bad number given what you talked about here on rollouts and on price inflation and so on. We also know that you have some kind of IPR catch up from Trenchant here in Q3. I guess some of the uncertainties there is based on this, how is this impacting this guidance? Should we be even more conservative after this, or given that there is some impact from Trenchant in this? Börje Ekholm: Not to comment explicitly on Trenchant, Daniel. I would say it's a marginal impact from that. That has not been assumed to be a positive contributor during Q3. These type of contracts on the IPR depends on exactly how they look like. I think the key here is the agreement we strike increases the value. We're at SEK 13.5 billion run rate now. That's the most important part. It positions the value of our IPR portfolio for the future. The contribution is actually marginal during Q3. Otherwise, I may take you up on a coffee in Edsbruk. Daniel Djurberg: Yeah, that's great. Always welcome. Börje Ekholm: Thank you. Daniel Morris: Thanks for the question, Daniel. Moving to the next question, please. The next question is going to come from the line of Sandeep Deshpande at J.P. Morgan. Please go ahead, Sandeep. Sandeep Deshpande: Yeah. Hi, thank you for letting me on, and all the best for your future endeavors, Börje. Just a quick question on the Enterprise business of Ericsson. Over the last five years, this business has consistently been loss-making. Is there a time horizon over which the intention of the company is to make this business profitable? It has, on average, been 10% impact on your EBITDA reported for the year. It has been a consistent negative. Will this change in the next few years? Börje Ekholm: It will. The answer, Sandeep, is, of course it cannot be consistently loss-making. Instead, it has to be value accretive to the group. 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 WAN business to actually contribute, not to reported numbers, but the way we see sales growth on bookings, et cetera. It's actually quite positive. The challenge in Enterprise has been the, call it the private networks, where we've actually not had attractive, neither growth nor profitability. That is something we're working to address and starting to see progress on that. You all know the business of Vonage has not been contributing. We put in place a plan to change the trajectory of that business that we're executing upon. It will take a little bit more time, you will start to see improved performance in the reported numbers. You've seen it from Q1 to Q2, and you'll see it continuing throughout the year. Clearly, the ambition is here to turn this around and make it value accreting 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. I would say the plan is in place, and we're executing on that, and over time, it should be value accretive. Sandeep Deshpande: Thank you, Börje. Daniel Morris: Thanks, Sandeep. Moving to the next question, please. The next question is going to come from the line of Sami Sarkamies at Danske Bank. Please go ahead, Sami. Your line's open. Sami Sarkamies: Thanks. First of all, I want to thank Börje 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? Börje Ekholm: Thanks, Sami. I think it's a bit unfair to my successor to put something on his table. What we have been focused on the last few years is that we have recognized that the core mobile Networks business, in reality, is a flattish market. 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're actually doing it in mission-critical, including defense, and there we're starting to see that it contributes to overall growth. 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. 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. 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. When that happens, we're going to be very well-positioned with the initiatives we have taken. I am sure that my successor will take new initiatives and ideas and change some to capture this potential. I think there are a lot of opportunities. Not saying it's easy, it's a lot of opportunities where we can capitalize on our position. Sami Sarkamies: Thanks. Daniel Morris: Thanks for the question, Sami. Moving to the next question, please, which will come from the line of Felix Henriksson at Nordea. Please go ahead, Felix. Felix Henriksson: Thanks for taking my question. Again, congrats and all the best for the future, Börje. My first one is on the inventory. You tied up around SEK 4.6 billion in inventory during the quarter. 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. If you could just unpack the inventory build-up a little bit and how we should read into it. Thanks. Lars Sandström: Yeah. When you look at the inventory build-up here, it's around SEK 5 billion in the quarter. The majority of that is finished goods that is then to be delivered in Q3 and going forward on this phasing, as you mentioned. There is also a portion of that connected to the higher component cost that we see coming in. It's not the majority. It's a smaller part of the SEK 5 billion that is connected to the component cost increases. This will continue a bit. That will be the challenge going forward here to really address the working capital and the capital turnover rate here in the coming quarters. 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. Felix Henriksson: Great. Thank you. Daniel Morris: Thanks for the question, Felix. Moving to the next question, please. Next question is going to come from the line of Janardan Menon at Jefferies. Please go ahead, Janardan. Janardan Menon: Hi. Good morning. Thanks for taking the question. Congratulations, Börje, 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 Networks 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? 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. Are you seeing any competitive effect from these actions which could have an impact on your market share? Börje Ekholm: You actually make implicit in your question, Janardan, is actually an important part here. There may be, as you say, a little bit lower cost inflation in the Chinese ecosystem. 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. We're not the only one going through this. What we are doing is, of course, spending maybe a little bit more effort on product design to actually optimize our products for the performance needed, in order to balance component cost. This takes six, nine months to do. It doesn't really come through in the short term. Longer term, it will help us. I expect everyone to do something similar. We're probably going to see that in other parts of the AI value chain as well, that companies do the same thing because it's simply a way to optimize performance and cost of your product. I don't think the vendors, whether they come from China or from elsewhere, are under any other way of operating. Janardan Menon: Understood. Thank you very much. Daniel Morris: Thanks for the question, Janardan. Moving to the next question. The next question will come from the line of Stéphane Houri at ODDO. Please go ahead, Stéphane. Stéphane Houri: Yes, good morning. Actually, I wanted to speak about the Cloud Software and Services margin, where your margins went really above the expectations, 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. Lars Sandström: When it comes to Cloud Software and Services, we try to emphasize the EBITA 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. You also see the impact when we get a bit higher revenues, that there is a leverage also supporting the margin here. It's a mix of the leverage and the product mix. It is, as I said, a good quarter here in Q2. We have said that we are aiming for double-digit Cloud Software and Services EBITA margin, and we are there now and above. The task is for us to maintain and drive this going forward. There is also, of course, the connection with the RAN market demand. It's not separate Life of that business, of course. The challenge we see in the RAN market is also there for the Cloud Software and Services. Having said that, we see some good progress in capturing a bit of growth here that we have seen. If you look more on the rolling base, it's actually been a bit better than the pure RAN market here, and we intend to keep focused on that going forward as well. Börje Ekholm: 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. Yeah, at least the turnaround plan that was put in place several years ago. Commercial discipline, work on the cost side, focus the product portfolio, et cetera, that's giving the benefits here. 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 the CSS. A lot of the actions taken. It was 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. It takes time. Not going to commit to a timing of reaching that. Of course, the ambition is to make this a more profitable business than it is today. I think it's the timing effect of action. When you take them, it takes a few quarters before you see it come through. Stéphane Houri: Very clear. Thank you very much. Daniel Morris: Great. Thanks for the question, Stéphane. I see we are just coming up on time, We will need to conclude today's conference call there. Thanks for joining us. Thanks, Börje. Thanks, Lars, and also to Per. Börje Ekholm: Thanks, everyone, Good luck in your work.
