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Hello, everyone, and welcome to the presentation of Ericsson's Third Quarter 2026 Results. Joining us today, we have Per Narvinger, our President and CEO; and also Lars Sandstrom, our Chief Financial Officer. As usual, we'll have a short presentation followed by Q&A. And in order to ask a question, you'll need to join the conference by phone. Details are available in the earnings release and also on the Investor Relations website.

Today's presentation contains forward-looking statements and is being recorded. Actual results may differ materially due to various risks and uncertainties. Please refer to today's earnings report and the annual report for additional information. I'll now hand the call over to Per for his introductory comments.

Thanks, Daniel, and good morning, everyone. So today marks my first earnings call as CEO of Ericsson. I'm pleased to begin by reporting a strong third quarter where we are executing well in a challenging environment. So looking at top line, organic sales grew 7% with organic growth in all segments. Growth was driven by solid customer demand in strategic markets and effective commercial execution.

Our gross margin was 47.7% and EBITA margin came in at 17%. The quarter demonstrates the earnings leverage we create with sales growth and discipline on costs. So Lars will soon go through the numbers in more detail. Let me give a few more general reflections first. So since the announcement of my appointment, I have spent a lot of time meeting with customers and a consistent theme is the need for increasingly intelligent and autonomous networks to improve performance, efficiency and customer experience. So with the rapid development of AI, it's obvious that the -- that many new applications are going to be dependent on mobile connectivity. This means that networks will need to be even more reliable and resilient in the future.

We are well positioned to help our customers on this journey. So with AI models optimized for their use cases and leveraging Ericsson's purpose-built silicon, we enable our customers to get more out of their spectrum assets without increasing power consumption. So we will continue to invest and make sure we stay on the forefront of this development. At the same time, we remain realistic about the market. The RAN market is broadly flat and component costs are increasing in the wake, of course, the AI boom.

So far, we've been able to mitigate with tactical actions such as product substitution and upselling. These tactical efforts, however, they will not be enough long term. We are also taking structural action, including portfolio optimization, raising prices, supply chain measures and efficiency improvements. Many customer contracts are multiyear, so structural mitigations will take time to flow through. We will not be immune to higher component costs, but protecting the value of our technology and the profitability of our Mobile Networks business remains our top priority.

We are also maintaining cost discipline while at the same time, prioritizing the investments needed for technology leadership and supporting our customers. The organizational changes that we announced today are part of that work. So from January, we are creating market area Asia Pacific by combining Northeast Asia with Southeast Asia, Oceania and India. This will help us operate more effectively across the region while maintaining strong customer focus at country level.

We are strengthening our focus on seamless connectivity and want to make sure that we can offer a rich indoor portfolio that leverages the full R&D competence in the company. We are therefore making changes to enterprise wireless solutions to capture these R&D synergies, drive product innovation and accelerate the growth with both CSPs and enterprise customers. These changes will also create a leaner executive team with clear accountability and the ability to move fast in a dynamic market.

So with that, I will hand over to Lars to go through the financial results in more detail.

All right. Thank you, Per. I will begin with some additional comments on the group before moving on to the segments. Net sales in Q3 totaled SEK 59.5 billion, with organic sales increasing 7% year-over-year. Sales in all market areas grew with the exception of Americas, which reported a slight decline of 1%. In Americas, sales grew slightly in North America, but were lower in Latin America.

In the other market areas, sales were driven by Japan, India, Vietnam and the Middle East. Sales in Market Area Other grew with enterprise sales broadly stable and growth in IPR. IPR revenues were SEK 3.9 billion with an increase of SEK 0.8 billion year-over-year. Part of the increase is due to retroactive revenue related to previously unlicensed periods. The current IPR run rate is approximately SEK 13.5 billion.

Turning to the rest of the P&L. Adjusted gross income was SEK 28.4 billion with a gross margin close to 48%. Gross income increased year-over-year by SEK 1.4 billion due to higher sales in Mobile Networks. Gross margin was broadly stable. On the cost side, we were affected by component cost increases, mostly in Networks. I will cover this in more detail later.

Operating expenses, excluding restructuring charges, improved to SEK 18.4 billion, around SEK 0.7 billion lower year-over-year. Cost reduction actions are mitigating wage pressures. Adjusted EBITA was SEK 10.1 billion. Excluding the divestment of iconectiv, EBITA increased year-on-year. The EBITA margin was 17%, showing the benefits of operating leverage with higher sales. Cash flow before M&A was SEK 4.9 billion, driven by earnings and impacted by higher inventories. I will come back to this later.

Let's move to the segments. In Networks, sales increased by 9% year-over-year to SEK 38.7 billion. Year-to-date, organic sales grew by 4%. Organic sales grew in all market areas with the exception of Americas. North America grew slightly, while Latin America declined. Sales were driven by 3 main building blocks. First, our strong commercial momentum in the past 12 to 18 months is translating into share gains and financial performance in strategic markets, for example, Japan. Second, we are seeing a near-term shift in customer behavior with some customers accelerating spend before price increase. And third, good commercial execution on the near-term sales mitigation activities. As you know, we put this in place to support sales and margins as component costs increase.

Networks adjusted gross margin was stable at 50.3%, benefiting from product mix and retroactive IPR licensing revenues, offsetting some of the component cost increases. Adjusted gross income increased to SEK 19.4 billion. And adjusted EBITA was SEK 9 billion, up from SEK 7.2 billion last year, mostly due to higher sales. Adjusted EBITA margin was 23.1%. And looking at the right-hand graph, the rolling 4 quarter adjusted gross margin was around 50% and adjusted EBITA margin around 21%.

Moving over to Cloud Software and Services. Sales increased by 3% to SEK 15.8 billion. Growth was broad-based across the commodities and benefited from growth in adjacencies, leveraging our capabilities into non-CSP verticals. Adjusted gross margin came in at 43.5%, and broadly stable compared to last year. Adjusted gross income increased to SEK 6.9 billion. And adjusted EBITA increased slightly to SEK 2.0 billion with a margin close to 13%. And looking at the right-hand graph here, the rolling 4-quarter adjusted gross margin was around 44% and adjusted EBITA margin around 13%.

Then on Enterprise. Reported sales decreased by 10% due to the sale of iconectiv in the prior year. On an organic basis, enterprise sales grew by 1%. And within Enterprise, we are seeing good customer momentum in the enterprise 5G private networks. And as Per mentioned, the changes announced today will capture R&D synergies, drive product innovation and accelerate growth. Adjusted gross margin declined to 50%, reflecting the impact of the divestment of iconnectiv. Adjusted EBITA landed at minus SEK 0.5 billion and improved sequentially. Efficiency actions are underway to improve profitability further.

Then turning to free cash flow, which was SEK 4.9 billion before M&A in the quarter. Cash flow generation was supported by earnings, but impacted by increased operating net assets, mainly inventories. The buildup in inventory was due to higher component prices as well as the usual buildup of finished goods ahead of Q4. We delivered a cash flow to net sales of 11% for the rolling 4 quarters within our 9% to 12% target. And net cash increased sequentially to SEK 60.7 billion. Gross cash increased to SEK 98 million, and we raised a EUR 500 million bond in Q3, preparing for upcoming maturities.

The share buyback continued in Q3 with SEK 4.5 billion of cash flow used for buybacks and impacting net cash. Year-to-date, this has delivered SEK 8 billion back to shareholders with 79 million shares repurchased alongside SEK 5 billion of dividends.

Next, I will cover the outlook. Global uncertainty remains elevated given the broad geopolitical and macroeconomic environment, including the global semiconductor situation. We are not immune. The industry is entering a period of higher input costs and the financial impact will continue to build up in the coming quarters. Our near-term mitigation actions across the business, mainly commercial measures are working well so far.

As Per mentioned, we are continuing with our plans to gradually implement longer-term structural actions. These will be needed to more sustainably offset these impacts and protect our position in the value chain. We are adjusting pricing in current tenders and discussing to broaden price increases and commercial mitigations with current customers. We are also continuing efficiency and supply chain actions.

Turning to the Q4 outlook. The outlook assumes the exchange rates specified in the report. And for Networks and Cloud Software Services, we expect sales growth to be broadly similar to the 3-year average quarter-on-quarter seasonality. We expect Networks adjusted gross margin to be in the range of 49% to 51%, benefiting from product mix. Restructuring charges for 2026 will be elevated as you have already seen in the first 9 months.

With that, I hand back to you, Per.

Thank you, Lars. So let me close with 3 messages. First, we are executing from a position of strength. The quarter demonstrates the earnings potential of Ericsson when customer demand, commercial execution and cost discipline come together. Second, we are acting decisively on challenges ahead. We are addressing higher component costs and a broadly flat RAN market while protecting the investments that underpin our technology leadership.

Third, the opportunity ahead is significant. AI will increase the demand place on mobile networks and create new opportunities for our customers. With our technology, customer relationships and the actions we are taking, Ericsson is well positioned to deliver sustainable, profitable long-term growth across the group.

Finally, I'd like to give a big thank you to all of my Ericsson colleagues for their contribution to the quarter and their commitment to our customers.

And with that, Daniel, let us open up the line for questions.

Thanks, Per. We'll now move to the Q&A portion of the presentation. [Operator Instructions] Operator, we're now ready to go to the first question. The first question today is going to come from the line of Simon Granath of ABG.

And especially, congrats on the new position, Per. I have a question around investment trends in light of recent news about satellite operators potentially looking into buying and building their own terrestrial network. Could you talk about whether you see this as an emerging opportunity for Ericsson? And what is your assessment as to how operators are responding to this? Are they revising any CapEx around priorities due to these industry dynamics?

Thank you, Simon. It's a very good question. We discuss satellite with most of our customers at the moment, to be honest. First of all, for the end user, satellite communication will be a fantastic addition to terrestrial networks. What we see will be very important is to have a seamless connectivity between outdoor and indoor. Obviously, that's going to be one of the challenges for satellite, how to take the outdoor coverage indoor. So we believe that for our customers, that seamless, high-performing experience is going to be very, very important.

That's also one of the reasons now that we are consolidating our R&D efforts in the indoor segment, meaning that we then also move our activities from our enterprise wireless solution business area into networks. So overall, we would want to see this as it actually shows the importance of connectivity. There will be more players for connectivity, but you cannot rely on satellite alone. You're going to need the terrestrial coverage as well. So we basically see it as positive.

Thanks for the question, Simon. The next question is going to come from the line of Andreas Joelsson at DNB.

A question on sales and the demand and how we should look at that going forward. It's very strong in the quarter, obviously, and the outlook for Q4 states that it will be normal seasonal patterns, so also a quite strong end to the year. And then you say that the market is broadly flat. So how should we look at this into 2027? Is there a flat market also the most likely going forward? And also how that impacts your long-term mitigating -- or actions to the higher component costs? Can you be a little bit more sort of clear in what you do to further mitigate because you've obviously been quite successful so far?

Thank you, Andreas. Maybe I'll start. So what we are seeing is a strong quarter in sales. As you are alluding to, there is a lot of headwind on the cost side. And we, of course, sit on fairly long contracts with our suppliers. We also sit with long contracts with our customers. And that means in the short term, what we can work with is tactical actions, and that would be things like upselling, making sure we do product substitution. So we have products with a better cost profile in what we are selling. Those are the kind of tactical actions we are taking.

You could also probably see some kind of signal that looking at the product mix because there are less services. So maybe some of our customers are now trying to buy before price increases because we are signaling that we do see that this AI demand will continue, meaning, of course, cost on components will be high also next year. And you can only do tactical actions for so long. So that means we need to get some of these more long-term actions in place for next year, meaning we need to get prices up with our customers as, of course, then contracts get renewed.

Over time, this will, of course, ripple through the P&L. Our view is that this is, of course, structural. Everyone is having the same challenge, meaning in the end, we, as a supplier, cannot absorb these costs, they have to be passed on. But of course, there can be a transition period, and that's what we are saying that '27 could be such a transition period. But obviously, this quarter, we have managed well with tactical actions. I don't know if there's anything you want to add to that, Lars?

No, I think you asked on the demand and our ability to grow. And I think we live. We have not changed our view on the RAN market per se. Then of course, we try -- we work closely with our customers, how can we grow, how can we, with our technology, gain market share, et cetera, what can we do in adjacencies, et cetera. So our clear ambition is, of course, to capture some of that opportunity also in 2027 as we have done in 2026.

Thanks, Andreas. Moving on to the next question, please, operator. The next question is going to come from Sandeep Deshpande at JPMorgan.

My question is regarding -- you've had a third quarter, which was much better than seasonal. And now you're guiding the fourth quarter to be seasonal levels of growth. I mean, is this showing some kind of share gains by Ericsson or something else happening in the market given that you continue to say that the market is flat. So this doesn't seem like a normal sort of behavior or it was that because Q2 was below seasonal that you had Q3, which was well above seasonal. So I'm just trying to understand the dynamics of the guidance at this point.

Sure. Yes. So I think you're right in that, Sandeep, that, as you said, we were a bit weak in Q2, as we said, and we were coming out stronger in Q3, as we also said. And then looking at where we are year-to-date in Networks, we are around 4% up year-to-date. So I think that is stabilizing again. And to measure share gains in just one single quarter, I think that is too short term to think like that. We have some improvements in some markets where we are prioritizing. So we see that happening, for example, in Japan, which is good, but it's not the big driver in that sense and especially not in a single quarter.

Thanks, Sandeep. Moving to the next question, please, operator. The next question is going to come from the line of Daniel Djurberg at Handelsbanken.

Yes, my question would be on if you can comment a little bit more on the actions you do in the Enterprise business area and how soon we should expect the remaining part, parts, i.e., the Global Communication platform to show profitability?

Thanks, Daniel. Let me start. So what we're announcing today is then the Enterprise Wireless Solutions, which we have had as a business area, and we will dissolve the business area as such, but of course, continue with the portfolio and the solutions. We are taking what we call neutral host and EP5G, and we are actually then moving them to networks where we believe we can get a better R&D muscle, and we can then also accelerate the journey towards profitability.

There will still be parts left. So what actually used to be Cradlepoint, we will keep as a stand-alone unit. And that unit will be headed up by Yossi Cohen, who is also our Head of Americas. That business is actually showing strong improvements, and we are getting to black numbers. So that will then stay in what today is the enterprise segment.

What is then the other big part is, of course, what used to be Vonage. When it comes to Vonage, we made one change in the quarter in leadership. And Christophe just coming on board have, of course, the target not just to grow the business, but we have also been very clear that we need to look at the cost -- on the cost side of Vonage business. It is absolutely my experience in this company that we rarely succeed by just having growth. We also need to look at the cost side. So that is the target at hand for Christoph. And of course, we will come back and report progress as we go along. But it's absolutely a priority to get to black numbers quicker on the Enterprise segment.

Thanks, Daniel. Moving to the next question, please, operator. Next question comes from the line of Jakob Bluestone at BNP.

Could I ask you about the magnitude of the pull-ins that you're seeing? So you mentioned that you're seeing customers kind of responding behavioral changes ahead of potential price hikes. And just sort of if you can help us understand how big a contributor was that actually to your growth, just so we can kind of break down what are more underlying sort of structural growth drivers and what's maybe perhaps a little bit more phasing related?

Yes. Thanks. No, I mean as I mentioned there in the beginning, we talked about 3 areas of growth drivers in this quarter, and this is 1 of the 3. We don't quantify each of them, but as we bring up those 3, you can drive a bit of conclusions from that, I think. And so it's not -- it's there. It's not super big. That's why I also tried to talk a little bit on the year-to-date growth in Networks of around 4% to give a more flavor of how it's performing. So there is some pull-ins coming. And -- but it's not that it's a big material impact going for 2027 from 1 quarter or this.

Thanks, Jakob. The next question will come from the line of Felix Henriksson from Nordea.

I'd like to double-quick on the near-term tactical commercial measures that you've used in offsetting the component cost inflation, especially when it comes to upselling. What kind of products have you been successful in upselling? And how sustainable you see this sort of as a lever for offsetting the component cost inflation that you're witnessing?

Thanks, Felix. And so maybe I'll elaborate a bit on what kind of contracts we typically have. So we write frame agreements, maybe 3 or 5 years out. And of course, in those contracts, we can only include what we know at the time. Of course, as we develop new products, we can set the right price on those products as they become available. And with tactical, you could see it as you try to sell, of course, the newer products. You try to -- because obviously, they have then the right price structure and cost structure. You could also look at it, there's always differences across the portfolio.

If the cost of certain memory is going up, you might have more or less memory in different type of products in your portfolio, you might try to steer sales towards those that are better. And of course, you can always try to have find upsell or do upselling, trying to find, I don't know, opportunities on software side or in other areas that will actually help the margin. So those are what we would call as tactical activities. And of course, you cannot continue to do that forever. In the end, you need to get the right prices in your price book.

Thanks for the question, Felix. The next question comes from the line of Francois Bouvignies from UBS.

I have a quick question on OpEx. I mean you are doing a lot of work on the OpEx side. You talked about the inflation of components. And obviously, you are OpEx down this quarter. I mean, this year, you're going to have a good cost control. How should we think about the OpEx next quarter and next year, more importantly, I mean, should -- do you expect some inflation there or the cost measure would lead to flattish or maybe down OpEx? Just directionally, how should we think about OpEx from here given all the work you are doing?

Yes. But when it comes to OpEx, if we think next quarter, there is always a bit of seasonality in Q4. So I think that you can expect also this year. But when it comes to the more -- and there is a continuous that we have with salary increases that we need to work with. And I think that we have had the intention and the hard work that we should offset any of these inflationary impacts that we see coming into OpEx, and that journey continues going forward as well.

And I think this quarter, we have been done pretty okay. And you have seen the restructuring measures that we have done impacting both OpEx and cost of sales, of course. But -- and that journey will need to continue because we live in this, as we talk about the flat RAN market. And as long as we don't see any change there, we need to continue that work.

Any direction for next year, flat, up, down? Just direction. I don't care about the...

No, I think the direction is that we need to continue to offset any salary increases. And then with the component cost impact, we need to rethink also is there more that we need to do. But I think as for now on, it's still to offset and then continue work.

Thanks, Francois. Moving to the next question, please. The next question comes from Stephane Houri from ODDO.

The question is about the market and the pricing because in a flat RAN market, how much pricing do you think you can realistically pass through to the operators? And do you expect to fully offset the component inflation in 2027? Or is there some gross margin dilution built into your thinking?

Thank you. Maybe I start and then Lars can pitch in. So we are talking about headwind in '27. And that is, of course, because as I tried to say in the beginning, it takes some time for this to ripple through with all customers and in the full P&L. Our view is that over time, we need to pass on this cost and our customers in the end will have to pass on the cost, the increased CapEx they get to their end users. So this is more a timing question on how it plays out.

And of course, while you have that, you try to mitigate as much as possible with the more short-term tactical actions, as I said, right? But we are flagging that '27 is probably somewhat of a transition year, but we will, of course, work to mitigate. And I don't know if you want to...

I think you captured it well. And when it comes to -- I think everyone understands this and you meet a lot of customers, and they understand the situation. Of course, nobody likes it and our operators in large parts of the world are struggling with return on capital employed. So this -- that's why it takes a bit of time to get this through, but everyone understand it.

Okay. And just one short follow-up. How do you work with your component manufacturers or suppliers? Do you have regular meetings to update prices? Or do you fix the prices for a certain period as much as you can?

We have a lot of meetings with our suppliers, I can tell you. Everyone, of course, want to increase their prices similar to us wanting to increase prices with our customers. I don't think there's an easy answer or a universal answer to the question you have. Of course, in some areas, we have to work with committing on volumes in order to simply have the supply resilience. But there is not one simple answer to that. But I would say the supply and sourcing organization is having an intense year.

Okay. Thank you. Thanks, Stephane. Moving to the next question, please. Next question is coming from the line of Sami Sarkamies at Danske Bank.

I have a broader question for you as a new CEO. Could you highlight the areas where Ericsson needs to improve the most and summarize the changes you are now implementing as CEO. I guess you know the company well. It will not take that much time for these changes to happen?

Thanks for that question, Sami. We are performing well in our core business, so in BCSS and BU. We, of course, have to make sure that we stay in the strong position we have and then defend our leadership. And I think many of the questions today are around that part. The area where we, of course, have more work to do is in the enterprise segment. And we announced some changes today. And as I mentioned before, we are also going to be focusing on trying to get to black numbers faster for Vonage, so working with cost.

With the changes I also make, we make some changes to the market area structure today. So while doing that, we believe we can support our customers better and also get some cost synergies. It also means that I will get a somewhat leaner executive team, which I think is important because it means we can be faster and more agile in a very dynamic environment that we operate in.

Having said all this, I think the largest challenge at hand is, of course, that we operate in a market that is very flattish. So if you ask me what is the more long-term challenge we have, it's, of course, to find growth. And I would say you can put the growth in different type of buckets. You could put growth in more than working with what you have. I mean we have already talked about market share gains whenever it makes sense. You can put another bucket where we help our customers, of course, to get deploying new use cases, increasing their revenue, also meaning more money should be flowing in our direction.

And there's also an element then of business development. So what can we do in adjacent fields? What could we do with mission-critical networks, how to leverage sensing technologies for different type of industries, including also defense. And I also put enterprise in that bucket because we haven't really gotten the growth or the benefit from what you could do more in the enterprise segment and with network APIs. So I would say trying to find long-term growth will, of course, be something we are working with, but they will also come in different type of buckets.

Thanks for the question, Sami. Moving to the next question, please. Next question will come from the line of Robert Sanders from Deutsche Bank.

Maybe you could just update us on your views around putting GPUs into the baseband. Have you completely closed the door to doing that given you seem to be working more on the custom silicon side? Is there a scenario perhaps where you reconsider that point of view if TMOS, for example, demonstrates significant jumps in spectral efficiency over the next sort of year? Or do you see yourself just philosophically just against that approach altogether?

Thank you for that question. We are not philosophically against anything. We always try to do what makes business sense. We have disaggregated our software and hardware, meaning we have a lot of flexibility on what path to embark on in the future. Having said that, right now, we see that it's an extraordinary asset to have your own ASICs. That really makes it possible for us to get our functionality fast. It makes it possible for us to be very cost competitive. I also want to mention, so we -- you might have heard us talking about us getting new features out there based on AI functionality. We have one of my favorite features, it's called AI-native link adaptation. It's been around in the industry for as long as I've been. So it's more than 3 decades. I know we've been trying to optimize it. And now replacing that with an AI model, we get 10% gain in spectrum efficiency.

Today, we have that deployed commercially, commercial deployment with 3 operators, and we have more than 60,000 base stations running this functionality. So we are reaping these AI gains today. So reaping gains from AI is not about what platform you execute on. It's actually to get the functionality out there, of course, to create these innovative models and reap the benefits. So we are leading in this space. But of course, we are not ruling out any other platform. And of course, we continuously evaluate what is more cost efficient to run on. But AI is not something that will happen in 2028. It is happening here and now in our networks.

Thanks for the question, Rob. Moving to the next question, please, operator. The next question comes from the line of Ulrich Rathe from Bernstein.

I wanted to ask about free cash flow. In Q2, I think you said free cash flow was affected by inventory building for the deliveries in the third quarter. Now you're mentioning deliveries -- sorry, you're mentioning inventory build up again also in the context of component cost. Could you elaborate on that a little bit? And in this context, could you also please clarify whether this -- the IPR catch-up revenue were already collected in free cash flow in the third quarter or whether that's like a stretched out collection?

Yes. First on the IPR, it's not in this quarter. It's coming in coming quarters primarily. And when it comes to inventory buildup, as you see over this year, we have had quite a big buildup over the quarters. And that is partly through building inventories. And as I said, and as you mentioned, therefore, the deliveries coming out for Q4, but also the cost increase. We have been talking about component cost increases, and they are impacting inventories as well.

So that's -- you see it in both ends, so to say, and it's coming into the inventory side as well. And there is -- we are working on ensuring that we have the stability in the supply chain, and that means that we have inventories coming up a bit and also a bit on the market mix impacts with lead times. So in some markets, we have longer lead times, and that is also what you see in this inventory buildup.

Thanks, Ulrich. Moving to the next question, please, operator. The next question will come from the line of Oliver Wong at Bank of America.

I wanted to also ask about AI RAN. I was curious -- to what extent do you think that AI RAN could be driving revenues today, maybe in terms of market share? And also whether there's any dynamics related to the custom silicon you're focusing on versus the GPUs from a customer standpoint that you could flag?

Thank you. It is a revenue opportunity because it's obvious we are providing value. So the example I just gave with 10% more in spectrum efficiency. We could put it in the context of SpaceX buying spectrum last week for USD 8 billion. Obviously, if suddenly you get 10% more out of that spectrum, you could very quickly, of course, translate that to USD 800 million of value. So of course, that value, we feel, of course, some of that should come in -- back to Ericsson. So we definitely see it as a potential upsell with customers. We absolutely see that, that will be a differentiator when you're competing in the market.

Again, we are doing this on custom silicon. The feature I mentioned earlier today, that one can be executed on basebands out there deployed today already. I mean, obviously, we will always come with next-generation hardware. Who knows? Maybe we will deploy on GPUs in the future, but then you need to go out to the site and deploy that new hardware. Here, you have an area where we can actually start deploying these models already today and reap the benefits. And of course, that is a fantastic value for our customers. And some of that value should, as I said, come our way.

Thanks for the question, Oliver. Moving to the next question, please, operator. Next question is coming from the line of Sebastien Sztabowicz at Kepler Cheuvreux.

On a midterm view on 6G, even though we remain quite far away from first deployment, do you expect a normal upgrade cycle with 6G with a tangible hardware refresh cycle? Or there is a risk to see more a software upgrade cycle this time given the reluctance of many large operators to embark on a major CapEx cycle when it comes to 6G. I'm just curious about your sentiment with the next cycle?

It's a good question. We, of course, discuss this intensely with our customers as well. It's always difficult to say exactly what will be the case until the standard is set. Our ambition for sure is that most of our portfolio should be upgradable to 6G, meaning, of course, that you can reuse basebands, you can reuse radios also for 6G. There will, for sure, be some new spectrum bands coming with 6G and then obviously, you need to deploy new radios.

So we're not so different from when 5G came about. We see that there will be some additional CapEx, but also you'll be able to reuse the legacy or the equipment you have out in the field today. Of course, in the end, it depends what services will run on top of the network. And I think that is really the million-dollar question because you can today have much more advanced services and use cases on top of 5G networks as well.

So I think the more difficult question is when will that start materializing? When will we see more AI devices out in the networks that probably will generate much more uplink traffic. The way we see, of course, 6G will help in this. For example, in the 6G, you will be able to have a more dynamic allocation between uplink and downlink. But of course, we will support 6G on many of our existing products, but also, of course, have new 6G products.

Thanks for the question, Sebastien. We have time just for 1 or 2 more follow-up questions. So moving to the next question, please, operator. We have a follow-up from Daniel Djurberg at Handelsbanken.

I will be brief here. On these growth green shots, you mentioned first responders, defend, hybrid Satcom and potentially enterprise as well. And we know that China, India, U.S. is a little bit ahead, but we've also seen some forward-leaning European operators going for quality on demand and recently also 5G slicing in German, Italy, et cetera. Can you comment if you -- this is a little bit of a trend towards the programmable network that you have spoken about for years?

Thanks, Daniel. I think it is. And that is part of the challenge we have, right? We start talking about what is possible so long in advance that when it actually starts happening, it becomes old news. But we actually start seeing now that some of our customers are making use of the 5G stand-alone functionality. And that's, of course, something we've been talking about for a long time.

Having said that, we don't see it happening in volume yet. Then you also bring in mission-critical. And it's quite different in nature because it's mission-critical, for example, a blue light networks. Of course, if you sell a new blue light network, it's an entire network and it becomes a bit black or white, either you have one or you don't have one. So that is a very good business already today. But really what we are waiting for are, of course, the kind of use cases you are alluding to with -- I mean, making use of the quality on-demand type of functionality that we now have in modern 5G SA networks.

And again, think of AI applications. I don't -- I'm convinced that we will have people so dependent on AI agents that you will want to be guaranteed that you have access to that agent always. That means you cannot have what you have today because today is the best effort paradigm. You are not guaranteed that you will be able to watch your favorite video whenever. But if you have an AI agent, that, in my mind, speaks for having this kind of network slicing where you have different quality on different services. So this will happen. It's a matter of time. And as you're also saying, we see good examples of this is being implemented worldwide even if the volume is not there.

Thanks for the question, Daniel. And we have time just for one brief final follow-up. So we take one more question, please, operator, from Andreas Joelsson from DNB.

Sorry, you will hate this question. But if you would see 2027 and if you didn't do anything in -- or be successful in mitigating the component price increase, how much would that impact the gross margin if 2027 would be this transition year that you talked about earlier.

I cannot not give numbers on that. I don't know if Lars wants to have a go at it. But otherwise, I'll just say you can look at just on the server business to get a feel for how much the memory cost increase, I mean, we're talking about. So it will have a dilution effect significant if we are not taking action. I think that's what we are saying. But as you see, we have also been very successful in this quarter with tactical actions. So again, you should see this over time that it could be an intermediate year '27, but we will, of course, make sure and try to minimize the impact.

No, I think that's right. And it's a question, as you said, on phasing. How much will the tactical mitigations, how will they phase out and how will they be replaced by the more structural activities that we implement. And that is actually not easy to answer today. So -- but there will be some impact, and we have highlighted that also in the report.

And sorry, I had to try.

Thanks, Andreas. Thank you, everyone, for joining. That concludes the conference call today. Thank you.

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. And a little later, Lars Sandstrom, our Chief Financial Officer, will also join us. As usual, we'll have a short presentation followed by Q&A.

[Operator Instructions]

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 Börje 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 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, 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 2, 3 months, Per and I will spend a lot of time together working closely to ensure a smooth transition. But please, Per, I'll leave the word over to you.

Thank you, Börje. And it's, of course, a great honor to take over as CEO of the company from October 1. 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 as heading up the largest segment now for 1.5 years. I have to say, Börje, you hand me quite a challenge when we formed cloud software and services. It's great to see 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 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.

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 yes, thank you.

Yes, 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 2 percentage points if we exclude the benefit from the one-off IPR settlement last year.

EBITA 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, 2 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've 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.

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. Network sales declined in 2 out of 4 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. For 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 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 improvements 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.

And there was limited financial impact in Q2 from the component prices, helped by our resilient supply chain. The EBITA margin was 13.1%, in line with last year, and adjusted EBITA was SEK 6.9 billion, down by SEK 0.5 billion. EBITA was impacted by a negative currency effect of SEK 0.6 billion. And Q2 2025 also benefited from the IPR settlement and included iconectiv. Excluding these, adjusted EBITA 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.

So let's move to the segments. In 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 EBITA 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 EBITA 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 EBITA increased to SEK 1.8 billion with a margin of 14.2% (sic) [ 12.4% ].

Lower operating expenses benefited from efficiencies and currency. And looking at the right-hand graph, the rolling 4-quarter adjusted gross margin was around 44% and adjusted EBITA margin around 13%, a new high level. Then 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 the change in product mix.

Adjusted EBITA landed at minus SEK 0.8 billion, where the impact of the divestment of iconectiv was partly offset by cost reductions. EBITA 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. And in Q2, we had a buildup in inventories, in part preparing for planned Q2 -- Q3 deliveries, sorry.

We delivered a cash flow to net sales of 12% for the rolling 4 quarters at the upper end of our 9% to 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 then. The outlook assumes the exchange rates specified in the report. And for Networks, we expect sales growth to be above the 3-year average quarter-on-quarter seasonality.

For Cloud Software and Services, we expect sales growth to be broadly similar to the 3-year average quarter-on-quarter seasonality. We expect Networks adjusted gross margin to be in the range of 48% to 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.

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 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 continue 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, Börje. We'll move on to Q&A now with Börje and Lars.

[Operator Instructions]

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.

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 over the -- for the foreseeable future. Is the latter conservative in your view?

Yes. It's -- 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 -- we don't really -- I can't really point to exactly what type of applications. It's broad-based. 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. But -- 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 we -- 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. 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 until then, let's continue to plan for a flattish market.

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-Rojestal from SEB.

So I'll start with perhaps a question on GPUs in the radio units. 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?

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 the purpose-built. But then as I said, our RAN 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 the field. So there is no doubt there is room for the purpose-built. And then how it's going to look like over time, we are 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. And good luck on your future endeavors, Börje.

Thank you.

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.

Could you please quantify the component cost inflation impact on your network gross margin for this year? What do you expect in terms of impact? And regarding the price increase, what has been done already? Have you been already able to renegotiate some existing contracts with higher prices?

Maybe, Börje, starting with you with the discussions and then Lars, the final...

Yes 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 we -- 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. I can't guarantee that now. But I think we see a lot of mitigating actions that will help us position us well for the future. Per, maybe you want to take the details.

So, 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 phasing of the cost increases that are coming and the phasing 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. And congrats, Börje, for all your career at Ericsson.

Thank you.

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.

First of all, Börje, congratulations. And also, I know you will miss these calls tremendously, but we're only a phone call away 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, Andreas. Yes, I will truly miss the questions. And -- 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. Well, 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 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 -- 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 we don't guide, per se, on margins year out, right? So 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 -- but it's -- I feel quite good about the volume, and then it will be a bit more challenging short term on margins.

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

And 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 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. And 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 we see happening now in data center builds? And is there anything you think in terms of the strategy you might adjust so that you could tap into this huge wave of spending?

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 different? Yes, 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've 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.

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-Xavier Bouvignies from UBS.

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 mix rollout impact on the gross margin. And I thought in the past that you did actually a very good work on the mix 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. 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 costs, 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. It's more the rollout mix.

It's -- I can just start on the rollout question. The reality is 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 that will periodically happen. I think when you look at our track record over time, as you note, it's 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 mix 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 impact in Q3.

So it's actually less geographic dependence that we have 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.

Yes. And on the -- I think when it comes to impact from costs, we will see some already in Q2. But as we said there on the mitigating activities, we see that those will -- we will have those supporting -- offsetting that during the third quarter. Then it's a bit -- it is an increasing 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 term 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 phasing.

Moving to the next question please. Next question is going to come from the line of Jakob Bluestone at BNP.

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 for 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, Jakob, 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 there are not a -- 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 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 changed the prices, of course, in tenders we enter into. So 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, but it shows also our performance that it actually can be done.

Understood and best wishes.

Thank you.

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.

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 (Handelsbanken). We have a newly refurbished apartment available. Nevertheless, I will go first to -- or I would like to ask on the network gross margin and the guidance here, 48% to 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. But we also know that you have some kind of IPR catch-up from Transsion here in Q3. So I guess some of the uncertainties today is based on this, how is this impacting this guidance? So should we be even more conservative after this or given that there is some impact from Transsion in this?

Not to comment explicitly on Transsion, 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 it all -- these type of contracts on the IPR depends on exactly how they look like. I think the key here is the agreement we strike kind of increases the value. So we're at SEK 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 from -- is actually marginal during Q3. Otherwise, I may take you up on the coffee (Hillsbrook).

Yes, that's great. Always welcome.

Thank you.

The next question is going to come from the line of Sandeep Deshpande at JPMorgan.

And all the best for your future endeavors, Börje. Just a quick question on the enterprise business of Ericsson. I mean, over the last 5 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 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, 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 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 enterprise, call it, the private networks, where we've actually not had attractive neither growth nor profitability. So 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, but you will start to see improved performance in the reported numbers. You've seen it from Q1 to Q2, and you see it continuing throughout the year.

So clearly, the ambition is here to turn this around and make it value-accreting in the -- in the few. I'm not going to put a time line 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-accretive.

The next question is going to come from the line of Sami Sarkamies at Danske Bank.

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?

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've 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 grow -- 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 for the question, Sami. Moving to the next question, please, which will come from the line of Felix Henriksson at Nordea.

Again, congrats and all the best for the future, Börje. My question is on the inventory. You tied up around SEK 4.6 billion in inventory during the quarter. So I was just wondering if you could dissect this a little bit. How much of this is sort of attributed to the memory cost inflation and how much is attributed to sort of 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?

Yes. No, when you look at the inventory buildup here, it's around SEK 5 billion in the quarter. And the majority of that is, let's say, finished goods that is then to be delivered in Q3 and going forward on this phasing, as you mentioned. And there is -- but there is also a portion of that connected to the higher component costs that we see coming in. So -- but it's not the majority. It's a smaller part of the SEK 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 the 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.

Next question is going to come from the line of Janardan Menon at Jefferies.

Congratulations, Börje, from my side as well. I think you've done a great job on the profitability side as the company (you) inherited was struggling with profitability and now you -- 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, Janardan, 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, 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 6, 9 months to do. So it doesn't really come through in the short term. But longer term, it will help us. And 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.

Understood.

The next question will come from the line of Stephane Houri at ODDO.

Actually, I wanted to speak about the Cloud and Software and Services margin, the -- 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?

Now, when it comes to Cloud Software and Services, we try to emphasize the EBITDA 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 EBITA 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 that 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 that we have seen over the -- 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 focus on that going forward as well.

But it's fair to say there's no onetime 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, et cetera, 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 on the -- that we discussed on the enterprise side. A lot of the actions that have been taken in the last 1, 2 years will start to come through in the future. And that's what you see on BCSS. So a lot of the actions taken a few years back that now is building a solid base.

Then 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 actions. So when you take them, it takes a few quarters before you see it come through.

Great. Thanks for the question, Stephane. 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, Börje. Thanks, Lars, and also to Per.

Thanks, everyone, and good luck in your work.

Hello, everyone, and welcome to the presentation of Ericsson's First Quarter 2026 Results. Joining us by video today is Borje Ekholm, our President and CEO and in the studio, I'm joined by Lars Sandstrom, our Chief Financial Officer.

As usual, we'll have a short presentation followed by Q&A. [Operator Instructions] 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 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 Borje 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 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 receive a disproportionate interest from, I guess, the community -- 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 and 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. EBITA came in at SEK 5.6 billion with a margin of 11.3%, and the strengthening of the Swedish krona affected EBITA by SEK 2.2 billion. And you've also seen we have the revaluation of the long-term stock-based programs. And all of those are, of course, included in the results.

Cash flow during the first quarter is seasonably lower typically. Despite this, cash flow came in at a healthy SEK 5.9 billion with a net cash position of SEK 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 a target to buy back SEK 15 billion.

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 segment, which includes our wireless WWAN 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 SEK 1.4 billion. It's clearly unacceptable, but it also includes a number of onetime costs and have an improvement plan in place that we're executing on and we will expect to see that coming through shrinking losses during the rest of the year, comes from growth, operational discipline and of course, at the onetime cost base. 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 stand-alone a cost-effective alternative. And we've seen a trial with the Italian Navy -- or actually 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 a 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, Borje. I will begin with some additional comments on the group before moving over to the segments. So net sales in Q1 totaled SEK 49.3 billion with organic sales growing 6% year-on-year. The growth was broad-based and sales grew in all segments and 3 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 SEK 7.8 billion then. So organic growth again grew 6%. IPR revenues were SEK 3.1 billion, and this run rate coming out of the quarter is approximately then SEK 13 billion.

Adjusted gross income was SEK 23.7 billion with a negative currency impact of SEK 3.8 billion. Adjusted gross margin was 48.1%, in line with last year, excluding iconectiv. On the cost side, operating expenses, excluding restructuring charges, dropped to SEK 18.4 billion, around SEK 2 billion lower year-over-year, driven mainly by currency as well as the divestment of iconectiv. Underlying inflationary pressures were more than offset by cost reduction driven by headcount as well as efficiency measures. And as Borje mentioned, adjusted EBITA, which excludes restructuring, but includes the other one-offs was SEK 5.6 billion. This is down by SEK 1.4 billion, including a negative impact of SEK 2.2 billion, the divestment of iconectiv and SEK 0.5 billion of additional share-based compensation costs coming from the increased share price here during the quarter. The EBITA margin was 11.3%. Cash flow before M&A was SEK 5.9 billion, driven by earnings and reduced net operating assets.

So let's move to the segments. In Networks, sales decreased by 8% year-on-year to SEK 32.9 billion with a negative currency impact of SEK 5.2 billion. Organic sales increased by 7%. Organic revenues grew in 3 of our 4 market areas. 2 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 EBITA was SEK 6.4 billion, impacted by a negative currency impact of SEK 2 billion and benefiting from lower operating expenses, which were also supported by continued efficiency improvements. Adjusted EBITA margin was 13.3%.

Looking at the right-hand graph, the rolling 4 quarter gross margin stabilized around 50% and adjusted EBITA margin at around 20%. Moving to the segment Cloud Software and Services. Sales here decreased 9% to SEK 11.8 billion, including a negative currency impact of SEK 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 39.9% last year, supported by improved delivery efficiency and a favorable product mix. Adjusted EBITA increased to SEK 0.6 billion with a margin of 5.3% despite a negative currency impact of SEK 0.3 billion. Lower gross income was offset by lower operating expenses here.

And looking at the right-hand graph, the rolling 4 quarters adjusted gross margin was around 44% and adjusted EBITA margin around 12%. And these are both new high levels. So reported sales on the Enterprise side decreased 30%, impacted by the sale of iconectiv and currency. On an 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 iconectiv and change in business mix in Global Communications platform. Adjusted EBITA landed at minus SEK 1.4 billion, reflecting the divestment of iconectiv and nonrecurring cost of SEK 0.3 billion in the current quarter.

Turning then to free cash flow, which was SEK 5.9 billion before M&A in the quarter. We delivered a cash to net sales of 13% for the rolling 4 quarters, above our 9% to 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 SEK 6.9 billion to SEK 68.1 billion here in the quarter. The buyback program of up to SEK 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 Borje 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 3-year average quarter-on-quarter seasonality. And for Cloud Software and Services, we expect sales growth to be above the 3-year average quarter-on-quarter seasonality. We expect Networks' adjusted gross margin to be in the range of 49% to 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, Borje.

Thanks a lot, Lars. So our Q1 results demonstrate the strong execution on 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 are 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 Borje. [Operator Instructions] Thanks, operator. Time for the first question.

The first question this morning is going to come from Simon Granath at ABG.

I have a question on Lars on the memory and cost inflation. And the Q1 margin 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 else equal and on this topic, should we see Q1 marking the highest level for the year?

All right. Thanks, Simon. When it comes to outlook, we give, as you know, outlook for the first -- for the next quarter here. So -- but when it comes to 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, et cetera. 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.

The next question will come from the line of Andrew Gardiner at Citi.

So just on the North American revenue trends that you saw in the quarter, you've highlighted the pressure there, Borje, 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. The comps, as you suggested, were particularly tough in the first quarter given the tariff impact last year and some buy forward. Does that -- 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 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, 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 closed. So if you net-net, I don't see a changing market condition, but I see a bit better mix for us vis-a-vis the market. And as you noted, we had a tough comp in Q1. But don't assume the U.S. 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 have 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, I think, lends for a better predictability of the total company and actually for a healthier way of operating the company. So -- well, I think North America always will be important. From a mix 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. And I think Q1 is a good indication of the work we've done.

I mean I suppose related to that, I mean you mentioned the other strategic markets. I mean India and Japan have been the 2 you've highlighted away from North America. You did see good growth there. I mean is that something that is not just a 1Q impact, but we should expect steady growth from those 2 key markets through the year?

I would -- 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.

The next question is going to come from the line of Erik Lindholm-Rojestal from SEB.

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 SEK 0.5 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've launched in Sweden here at the start of the year, for example?

Yes. When it comes to OpEx, I think in the quarter here, it's down organically. I think it's currency and iconectiv 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 RAN 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. 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 the first quarter now, primarily to the Sweden area, but also the rest of Europe. We have activities in North America, in Asia, et cetera. 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 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. So -- but you will see it after the second half and into next year.

The next question is going to come from the line of Andreas Joelsson, DNB.

A 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 actually is 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 -- it's not -- 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 kind of leverage to protect a healthy gross margin longer term. And that's why I feel we have kind of 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.

The next question is going to come from the line of Richard Kramer at Arete.

Borje, 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?

Yes. Richard, it's a good question. We're not going to see any sales directly from data center expansions right now. Our, call it, 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 frontrunner 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 does 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 2 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 would like -- I don't want to promote that we have any exposure to data center. So that wave is going to go. We're more 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.

Next question is going to come from the line of Felix Henriksson, Nordea.

Good to see the Cloud Software and Services EBITA 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?

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 the cloud software is also connected to the flat RAN market. So there is -- but still, there is an underlying growth that we are able to capture with 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-by-quarter, as you know, but we feel we have reached a stable level now in a good way in the company.

The next question will come from the line of Ulrich Rathe at Bernstein.

This is more a question for Lars, please. 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, 2 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 strengthening -- sorry, of a weakening Swedish krona? Would that actually correspond to a material margin driver for you or not?

I think we need to separate between gross margin and EBITA margin here. On the gross margin, we are fairly balanced in the currency baskets, whereas in the OpEx side, we are much more exposed with the Swedish SEK ratio there. So it's higher as 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 would see that more impacting EBITA rather than gross 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.

Next question will come from the line of Sandeep Deshpande at JPMorgan.

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 a potential for significant upgrades? I mean that is the market hasn't shifted as much to 5G or 5G core over the last few years as it has in North America and thus, the growth outside North America could compensate if North American growth over the next few -- 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?

Borje, maybe we ask you to take that one.

Yes. That's a very good question. North America have been a front-runner market. 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 to -- from 5G non-standalone into 5G SA and then 5G advanced. It's still largely a work in progress. So if you try to give some sort of statistics, maybe 1/4 of the operators have some sort of 5G SA and 5G SA of scale is fewer than that. So I would say that's actually one of the major opportunities for our industry. And it's 2 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 network slicing, dynamic network slicing, for example, can happen when you have 5G stand-alone. 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 network 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 have transitioned today, they will need to go that way. And so it will provide an interesting opportunity for us as operators upgrade. So that's why we've invested in positioning us well on 5G core, and we are 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.

Next question is coming from the line of Daniel Djurberg at Handelsbanken.

A question. I was quite impressed by the network gross margin 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, i.e. supportive on gross margins and then also we have the cost inflation that you mentioned.

Maybe, Borje, we can start with your thoughts on those 2 markets more broadly and Lars on the margin.

Yes. I know we were often talking about coverage and capacity before. I would say what we have tried to do is actually to reduce the dependence on 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.

Yes. No, I think you covers it well. So I think the outlook you see in -- 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.

The next question is coming from the line of Sebastien Sztabowicz at Kepler Cheuvreux.

On the defense market opportunity, you've been talking about a $10 billion opportunity in that market. Now you are talking about some trials happening currently in Italy. When do you expect those opportunity to materialize and generate first significant revenue? Is it an opportunity over 3, 5 or beyond 5 years? Just to understand a little bit the phasing and the ramp of this technology.

Sure. Borje, 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 modern, call it, 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 5 years plus. It's more kind of a mid, call it, use 3 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 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 maybe 9, 12, 18 months opportunity, and then they start to scale at 2, 3 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 5-plus years. But then putting an exact number on it, I can't, to be honest. But I'm -- but the reception we get from customers is very positive.

The next question is coming from the line of Sami Sarkamies at Danske.

I still wanted to go back to the rising input costs that were discussed earlier in the call. I have a 2-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, we start with you on the first and Borje...

We start on the customer side. There are -- 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. So there are -- but there are still an opportunity, I think, to take this discussion because we are -- these are a bit exceptional times. So there is -- we need to take this in a good commercial discussion with our customers. And when it comes on the energy impact 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. But 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 you should also remember the revenue base of our customers is very stable. So they have quite -- 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, Borje.

You've captured it. What we see and we see 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 cost a bit [indiscernible] as we say in Swedish, 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 change in 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 cost. And that will include phasing out 2G, 3G and soon 4G in some markets.

Moving on to the next question, please, which is coming from the line of Oliver Wong at Bank of America.

I wanted to focus on perhaps the cost from things like logistics and transportation since given ongoing global geopolitical events, it seems like there could be some impact on that. And also perhaps on the instability of the supply chain, could that be a risk to you? So yes, it would be great to kind of discuss about the logistics and transportation costs. How is that relative to perhaps the impact from rising memory in terms of potential headwinds going into the year?

And I think 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 Middle East conflict there where we had to do some rerouting, changing transportation lines, et cetera, 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, et cetera. So we continuously work with this and try to mitigate when the things are happening. And of course, as we have said on the tariff side, 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 distribution hub in the Middle East. So we've been impacted for sure already and been able to mitigate that fully by leveraging the flexible supply chain. So I think this -- we'll have to focus on managing it, monitoring and managing it as well as we can.

We have time for one final question this morning. We can move to the next. So a follow-up question from Daniel Djurberg at Handelsbanken.

I know I should ask your customer this and I will, but still 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, you showcased at Mobile World Congress. 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?

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 our -- 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 infield performance we see on quality benchmarking when we compete with them, where we come out well. You can see that in all the -- whether it's Umlaut test or OpenSignal 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 infield performance. So operators that looks at that total perspective there we can compete, right? And we've seen that in Latin America. We see it some -- in Africa, it's 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.

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

Thank you.

Hello, everyone, and welcome to the presentation of Ericsson's Fourth Quarter 2025 results. With me here in the studio today are Börje Ekholm, our President and CEO; and Lars Sandstrom, our Chief Financial Officer.

As usual, we'll have a short presentation followed by Q&A. [Operator Instructions] 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 Börje and to Lars for their introductory comments.

Thanks, Daniel. So good morning, everyone, and thanks for joining us today. It was a strong end of the year, as we executed with discipline and made solid progress against our strategic priorities. We are building a more resilient Ericsson. We expanded EBITA margins year-on-year for the ninth consecutive quarter, and we're getting closer to our long-term target of 15% to 18% EBITA margin and we ended the year with a net cash position of over SEK 61 billion.

Our cost initiatives are just one component of our actions to structurally improve margins and cash flow. And you have seen that we have reduced the headcount, for example, by 5,000 over the past year. And we expect to continue reducing headcount going forward. And last week, we announced some initiatives we're taking in Sweden as part of a global effort we do to keep cost efficiency in our business.

With the operational improvements we've implemented over the past few years, they are now getting increasingly visible in the P&L, and we had another 48% gross margin quarter now in Q4. The EBITA margin was 18%, both for the quarter and the full year, and that means that we are tracking very close to our long-term financial targets after normalizing for the about 3 percentage point benefit from the iconectiv gain. And now going forward, we expect to see improving operating leverage as our top line accelerates that we could see in Q4.

Now that the underlying demand environment for mobile networks remain actually flattish. But it is encouraging that we had an organic growth of 6% during Q4. And the reason for this is that over the past few years, we have invested in a number of growth opportunities and growth initiatives like 5G core, mission-critical networks and enterprises, and I'll expand a bit more on this.

In my view, we're actually entering a very exciting era of what we can call hyper-connectivity. So now we're starting to see everything being connected. I would say Ericsson is really well placed for this paradigm shift, and I believe we have the right strategy to win. To date, AI investments have been focused on models, semiconductors, data centers, et cetera. For sure, these are really critical, but the real economic value will actually come in AI applications and devices.

So think about drones, humanoids, could be connected glasses, XR glasses, could be instantaneous or simultaneous translation services. You have a number of these things. All these new type of use cases, AI use cases, will really changed the nature of traffic with much more demand for uplink and low latency, and it has to be resilient and trusted.

So when you think about this new world with AI is going into the physical world, if you call it a kind of a physical AI, those applications and use cases will be distributed, but more importantly, they will also typically be mobile. So they will require advanced wireless connectivity.

So best effort connectivity, Wi-Fi, 4G, and I would even say 5G non-standalone, will simply not be enough. Instead, we will require 5G standalone today and then later on will require 6G. But this new world will also require better mid-band coverage to get the right performance of the network. And I'll take just 1 example, and you see China having a 10x denser grid than the rest of the world.

And I would say that's one of the reasons why many are saying China is a formidable competitor in AI today as they are moving into AI applications. So at this point in time, it's a very exciting time. Our strategy is to lead in mobile networks with high performance, autonomous and programmable networks that are 5G native and at the same time, scale this mobile platform to new areas, like mission-critical enterprise solutions, but also providing tools to developers.

So now let me go briefly through some of the progress we made against our strategic initiatives during the last year. Through our high-performing programmable and autonomous network, we're enabling our CSP customers to deliver differentiated performance and create new applications and use cases to monetize. And when you think about differentiated performance, it's actually creating dedicated performance for the application you have at hand.

And during the year, we actually signed several key agreements with front-runner customers like Telstra, Vodafone, but we also made critical inroads in the important Japanese market with all leading operators. These advanced networks that we're building together with front-runner customers will be key to monetize and scale the AI opportunity.

In parallel, we focused on scaling the mobile platform to new use cases and sectors, the most mature new use case is fixed wireless access, that during 2025, actually reached 150 million global subscribers. And typically, and most often, they have better customer satisfaction than other access technologies like fiber, for example.

And now as you've heard me say earlier, we're also starting to see traction within mission-critical applications. And this, we think, is a key growth opportunity for us going forward. During 2025, we executed many new agreements in the public safety sector, and we're also targeting national security and defense operations.

On the enterprise side, we're continuing to strengthen our position. The market for network API is actually starting to develop. In 2025, Vonage was first to offer aggregated access to network APIs across all 3 major U.S. carriers. And these advanced APIs included advanced fraud detection, and we have significant customer interest today.

Our joint venture, Aduna, onboarded and achieved full coverage in 5 countries, including the U.S., Spain, Germany, Canada and the Netherlands. In enterprise wireless solution, we're seeing the market for private 5G starting to industrialize. It's still, though, early days. So we -- but we continue to see growth in our Wireless WAN solutions, but that was partly offset by lower sales in private 5G. So it's still a developing market here.

So -- but before passing on to Lars to go through a bit more on the numbers, I'd like to take a moment to just go through our capital allocation strategy. Our top priority is to invest for technology leadership, and we expect this to be largely organic. We don't really see any need for large acquisitions going forward, as we believe we have the assets needed to execute on our strategy. However, we expect to see some smaller, potential tuck-ins, but that will be smaller in nature.

So our current, very strong financial position offers scope for increased shareholder distributions. And as you have seen in this report, the Board is proposing an increased dividend to SEK 3 per share and the buyback program of up to SEK 15 billion. So that would be a total of SEK 25 billion to shareholders. This represents the largest shareholder distribution in our history and reflect our strong position and the Board's confidence in our strategy.

So Lars will now go through this as well as our financials. So over to you, Lars.

All right. Thank you, Börje. I will begin with some additional comments on the group before moving on to the segments.

Net sales in Q4 totaled SEK 69.3 billion, with organic sales growing 6% year-on-year and with growth in all segments. Sales grew in the market area, Europe, Middle East and Africa; and in market areas Southeast Asia, Oceania and India. Market area, Americas, was broadly stable impacted by intense competition in Latin America, offset by slight growth in North America, driven by higher software growth; and Northeast Asia declined.

Reported sales decreased by 5%, impacted by a negative currency effect of SEK 6.8 billion. In Q4, adjusted gross income was SEK 33.2 billion, including a currency headwind of SEK 3.6 billion. Adjusted gross margin reached 48% as a result of our cost reduction measures and operational excellence in both networks and cloud and software and services.

On the cost side, we made steady progress. Operating expenses, excluding restructuring charges, dropped to SEK 21.4 billion, around SEK 2 billion lower year-over-year. Of this, about half is currency and the rest is cost initiatives. Excluding FX, R&D remained broadly stable.

Adjusted EBITA was SEK 12.7 billion, up by SEK 2.4 billion, including a negative currency impact of SEK 2.5 billion and the EBITA margin was up around 4 percentage points to 18.3. Behind this improvement is the good progress we've seen in terms of optimizing our operations and lowering our operating expenses.

Cash flow before M&A was SEK 14.9 billion, driven by earnings and reduced net operating assets. As Börje has already highlighted, the Board will propose higher shareholder distributions following the good 2025 cash generation.

Let's move on to the results for the full year. Net sales amounted to SEK 236.7 billion and organic sales grew by 2%. Growth in Americas and in Europe, Middle East and Africa was partly offset by declines in the other market areas. At the same time, reported sales decreased by 5%, impacted by a negative currency effect of SEK 13.9 billion. The sales decline, which gives a significant volume impact on gross income, was more than offset by higher gross margins.

Adjusted gross margin was 48.1% with support from cost reduction initiatives and operational efficiency. The result on adjusted gross income was an increase of SEK 2.5 billion to SEK 113.9 billion, despite a negative currency impact of SEK 7.2 billion.

Turning to operating costs, excluding restructuring charges and impairments. Operating expenses dropped to SEK 81.2 billion, which is SEK 7.4 billion lower than the prior year. Of these, about 2/3 come from our cost initiatives, mainly from SG&A and the rest is currency. Adjusted EBITA increased to SEK 42.9 billion, and the margin was 18.1% or 14.9% excluding the capital gain from iconectiv.

Net income for the full year was SEK 28.7 billion, including the benefit from iconectiv -- the gain from iconectiv. Cash flow before M&A was SEK 26.8 billion, a reduction of around SEK 13 billion compared to the prior year. In 2024, a strong working capital reduction contributed to higher operating cash flow. I'll cover cash flow more in details here later.

So let's move to the segments. In Networks, sales decreased by 6% year-over-year to SEK 44.2 billion, with a negative currency impact of SEK 4.4 billion, so organic sales increased by 4%. We saw organic growth in market area, Europe, Middle East and Africa, driven by Middle East and Africa. Sales also grew in Southeast Asia, driven by Vietnam.

Sales declined slightly in Americas due to continued price competition in Latin America. Sales were broadly stable in North America with continued healthy investment levels. Sales also declined in Northeast Asia due to timing of network investments. And Networks adjusted gross margin increased to 49.6% despite the higher share of service sales. The margin benefited from cost reduction actions and operational efficiencies.

Adjusted EBITA in Networks was stable at SEK 10.1 billion despite a currency headwind of SEK 1.8 billion. And adjusted EBITA margin was 22.8%, an increase of 1.2 percentage points compared to last year. And looking at the right-hand graph, the full year adjusted gross margin reached 50% and stabilized at the new level, and adjusted EBITA margin reached 20.7%.

Moving on to segment Cloud Software and Services. Sales increased by 3% year-over-year to SEK 20 billion despite a negative currency impact of SEK 1.8 billion. Organically, sales grew by 12%, mostly driven by higher core sales across all market areas and timing of project deliveries. Adjusted gross margin came in at 44.3%, an improvement of around 5 percentage points compared to last year, driven by a high share of software sales and continued delivery efficiency.

Adjusted EBITA increased to SEK 3.7 billion with a margin of 18.6%, supported by the effective implementation of our strategic initiatives. Looking at the right-hand graph, the full year adjusted gross margin was 43% and adjusted EBITA margin 11.4%. These are both new high levels.

Enterprise sales stabilized on an organic basis in Q4, growing 2%. Reported sales decreased by 25%, and that's an impact of the sale of iconectiv and currency. Global Communications platform organically grew by 3%, driven by an expansion in CPaaS. And adjusted gross margin declined to 52.1%, driven by the iconectiv divestment. Adjusted EBITA landed at minus SEK 1.1 billion, improving by SEK 0.1 billion compared to last year despite the iconectiv impact.

Turning to free cash flow, which was SEK 14.9 billion before M&A in the quarter and SEK 26.8 billion for the year. We delivered cash flow to net sales of 11% for the year within our 9% to 12% target. The decrease in cash flow year-on-year is due to very strong working capital reductions in 2024. Working capital in 2025 was broadly stable at historical low levels. And net cash increased sequentially by SEK 9.4 billion to SEK 61.2 billion.

Return on capital employed in 2025 was 24.1%, including the iconectiv gain, while excluding it, it was around 19%.

Then turning to capital allocation. During 2025, the Board has undertaken a review of the balance sheet and the capital allocation principles. On the balance sheet, we remain committed to an investment-grade credit rating and maintaining a solid net cash position.

Turning next to the 4 capital allocation priorities. First, the top priority is to maintain a technology leadership through continued R&D investment to ensure customer confidence at all times. Second, we are committed to a stable, to progressive ordinary dividends. And third, as already -- as Börje mentioned, we remain selective with inorganic investments. And finally, any excess cash will be distributed to shareholders.

So for 2025, the Board will propose an increased dividend of SEK 3 per share and a share buyback program of up to SEK 15 billion at the AGM. After adjusting for the total shareholder distribution of approximately SEK 25 billion, the 2025 net cash position is at a solid level, considering future investment needs and the business outlook.

Next, I will cover the outlook. Global uncertainty remains with potential for further changes in tariffs and broader macroeconomic factors. The outlook assumes stable exchange rates and no tariff changes here. So for Networks, we expect Q1 sales growth to be broadly similar to the 3-year average quarter-on-quarter seasonality. For Cloud Software and Services, we expect Q1 sales growth to be below the 3-year average quarter-on-quarter seasonality. And we expect Networks adjusted gross margin to be in the range of 49% to 51% for Q1.

And restructuring charges for the full year '26 are expected to be at an elevated level with proposed headcount reductions recently announced in Sweden and continued actions across other markets.

With that, I hand back to you, Börje.

Thanks, Lars. So today, we have a very strong position and a very competitive portfolio. In many markets, there will be a need to invest to keep network performance at a competitive level. And as you've seen, we made critical inroads in many key markets during the year, for instance, in Japan. In 2026, we're planning for a flattish RAN market, but expect growth to come from new areas.

This means we will need to continue our efforts on operational efficiency. And by doing so, we can strengthening our company for varying market conditions. This will enable us to continue with critical investments in technology leadership including increased R&D investments in defense and mission-critical, while at the same time supporting our margins and cash flow generation.

Overall, as I mentioned before, we're entering a very exciting time where AI will move from a focus on data centers and large models to devices and applications. This will require advanced wireless connectivity, putting Ericsson in the middle of the next phase in the AI era. Our strategy is focused on making sure we capture this opportunity.

We're doing it by providing the industry's best network for AI that enable differentiated services and new monetization opportunities. This includes both new use cases including by exposing networking capabilities through network APIs, but also new sectors, such as mission-critical networks. This will allow us to capture significant share of the value from connectivity and help drive growth for us as Ericsson.

So if I draw this out a bit longer term, I believe we can have a model with a flattish mobile networks market, but with our investments in growth areas that we -- basically, we can see a modestly growing top line. So if you combine the operating leverage, actually improving profitability in the Enterprise segments as well as share buybacks, we should see a healthy growth in profit per share.

So to wrap up, in 2025, we were laser focused on strategy execution and continue to take critical steps to position Ericsson for the future. We're unlikely to see growth in the RAN market this coming year, but our investments in mission critical 5G core and the enterprise will drive growth for the company. I would say it's exciting if you ask me. On that note, I also want to thank all my colleagues at Ericsson for a lot of great work. Thank you, team.

With that, I think it's time for you, Daniel, to lead us through some Q&A.

Thanks, Börje. We'll now move to the Q&A. [Operator Instructions] Thanks. Okay. Operator, we're ready to open the line for the first question.

The first question today is going to come from the line of Simon Granath at ABG.

Congrats team Ericsson for the solid results here. On OpEx, I'd like to push a bit on the medium-term trajectory and the R&D balance. With the RAN demand looking broadly flattish into 2026. OpEx growth largely reflecting salary inflation rather than volumes. If we assume a similar demand environment into 2027 with [indiscernible] still later in this decade, how do you think about the risk of managing R&D and were capabilities changes too early? So simply on the mid-term OpEx trajectory?

Mid-term. When you look at the OpEx levels that we have today, and the structure we have, it's a question about working and investing, and we are already in 2025 and back -- and going into this year, there are key strategic areas where we are investing and some other areas where we are taking other decisions. So I think that -- and that will also be how we will work going into 2027.

Then of course, there is a continuous cost inflation that we need to drive through productivity to ensure that we keep the right level here going forward as well. So there will -- and when these big investment comes, we will see. I think you will have to comment as well from your perspective.

Yes. I think the -- given the flattish market we're in, we will have to work continuously on the, I call it, R&D efficiency. But there is also a question of making sure we allocate to the right areas. This is why new areas like mission-critical is actually critical to be part of as well as defense applications. So we believe that we can -- even in a flattish market, we can actually have the right R&D level with the program and with the efforts we have in place.

But it's, as you know, it requires us to really be at the forefront of R&D efficiency as well. But you should not expect us to -- put it this way, we are not going to trade off technology leadership, and we believe we can have technology leadership at the spend level even into '27 and beyond.

Moving to the next question, please. The next question is going to come from the line of Erik Rojestal at SEB.

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

We -- if we start in the end of discussing -- first of all, what we want to say here is, in reality, the investments we make in defense today is captured in the total R&D spend. And as we go forward where we see that, we probably need to increase that a bit. And the reason for that is we actually see the potential for a very sizable market in defense given what the spending in the U.S., of course, but it's also the increased European spending on defense will make this into a fairly sizable market.

And we see that market moving from, what I would call, dedicated solutions, kind of proprietary technology solutions into much more 3GPP-enabled solutions. And the reason for that is simply that is more cost effective and it's going to be much better performance. So we see actually the communication market in defense to be a sizable opportunity that we want to make sure we're early on in. But there are also other applications.

So think about defense from a broader perspective, the sensing capabilities of the solutions we have actually allows you to, for example, do drone detection. Think about where the usefulness of that and it can do detection of objects that are not connected. So it's basically maybe popular wording will be called the radar.

These are major opportunities that we would say are really large that we want to position ourselves to go after. So when you see us increasing spending, it's not -- I think part of it will be offset with other efficiency gains, but we want to say that we actually go after an opportunity here that we think is rather sizable.

Thanks, Erik. Moving to the next question, please. The next question is going to come from the line of Jakob Bluestone at BNP.

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

When it comes to the supply chain, I think we have worked for quite some time on resiliency. And when it comes -- that is including then supply chain, so to say, deliveries. So that is continuous work that we do. So -- but of course, when it comes to the memory side, it has been quite a bit of noise around that. But I think we are in a good position of handling that as it looks for this year here.

And on the pricing side, it is a mix. Of course, there is some impact, but also here, it's really working close with our suppliers also together with our customers to make sure that we are not squeezed in the middle here. So it's both ends here to work with.

Can you maybe just expand how have you avoided shortages? Is this just by building inventories, just given the sort of...

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

Thanks, Jakob. Moving to the next question, please. The next question is going to come from the line of Andreas Joelsson at DNB.

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

I think as we mentioned there, the view is that it's important to have a solid net cash position. And we're coming out here with SEK 61.2 billion in net cash and the total distribution of around SEK 25 billion. And adjusted for that, we have given the business outlook that we see now, we see that it is a solid net cash position coming out of 2025.

Then when we come to next year, then we will have a look again, of course. But the capital allocation principles are there and that is guiding us also going forward.

And when you think about the business outlook, of course, you need to think about geopolitics, you think about whether it's the question before, tight supply chain, for example. And all of these factors reaches the conclusion that, that was the right level now.

And just as a follow-up, is there any thinking from the Board and from the management, given what you said before about growing EPS that you could -- that you would like to have a more long-term buyback program and making sure that you can achieve that?

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

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

Thanks, Andreas. Moving to the next question, please. The next question is going to come from the line of Sandeep Deshpande at JPMorgan.

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

Yes. If you -- a way to think about it, Sandeep, is we look at this market for the last 2 decades, right, and it's been flattish. So we like to think or plan for that type of market outlook. If it gets better, then we have a strong cost competitiveness, we get operating leverage. If it gets worse, we need to review that assumption, right? But that's kind of the way we think about the business.

Then, of course, it varies what happens. So over the last few years, and I think we spoke about this a couple of quarters ago that we saw increased competition in Latin America, we see it from time to others in other parts of the world, Southeast Asia, Africa, et cetera. So that kind of comes and goes a bit.

The thing that could be a positive is, of course, the high-risk vendor discussion in the EU. That's a sizable opportunity. If you think about the -- it's -- I mean we don't know exactly, but call the high-risk vendor market presence in Europe to be 1/3 to maybe up to 40%, but around that as a guideline, that would be a sizable revenue opportunity for trusted vendors.

So that could change. At the same time, it's -- now it's a proposal. It has to go through the process. So this is something that's probably going to take 12, 18 months before we really know the impact. So we're not factoring that in. But of course, it is an upside opportunity. And of course, it is, I would say, the toolbox, the EU discussed or implemented quite some time ago, which is 5, 6 years ago, has been not been widely adopted. So it is a change in stance with the current proposal.

Thanks for the question, Sandeep. Moving to the next question, please. The next question is coming from the line of Sébastien Sztabowicz at Kepler Cheuvreux.

On Networks, how do you see the mix trending in the coming quarters? We are now seeing some stronger growth in Africa, Southeast Asia and lower deployments in the U.S. and maybe also in Japan and Korea. So just curious about the mix trend in Networks. And also at a broad level what would be the puts and takes to your gross margin in the coming quarters? Where do you see some upside or downward pressure?

I think single quarters will vary. But if you look a little bit on the underlying for '26, North America on healthy investment levels in the market. So -- and that we expect to continue during the year. And then when it comes to growth opportunities, there is an investment need in India and also in Japan, where we have also in both these markets, ensure that we have a good, solid market position.

So when the customers decide to invest, we should be able to capture on that. Europe, rather stable. And then there are -- we will see what happens in Latin America. There is opportunities there, but still quite tough competition for sure, parts of Southeast Asia as well. So I think that's a little bit the balance act.

In Africa, we have had a couple of good quarters now with 4G and 5G rollouts and modernization activities. And hopefully, we can see that continue also going into this year. So that's a little bit the balance act on the market mix. And then the puts and takes, there is a cost pressure in the group, in the flat RAN market and continuous cost pressure on us both in the people part, but also in material cost so that we need to continuously work with.

That's why we talk about then somewhat higher elevated levels on restructuring, both -- that will impact both, so to say, OpEx, but also in the cost of goods sold. So that is necessary to offset this upward pressure on costs. So that is some of the puts and takes. Then you have the normal product mix, but that will vary between quarters as always.

Thanks, Sébastien. Moving to the next question, please. Next question is going to come from the line of Felix Henriksson at Nordea.

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

Yes. Normally, we try to give you that guiding point around the run rate coming out of the year, around SEK 13 billion. When it comes to the contract, this is not a major impact. And we always -- when we negotiate, renew contracts, we are targeting the best economic outcome and that we will do as well this time. So that could be some impact here, but that is then normally coming back with a renewal. So it should not impact the full year, so to say.

And then potential upsides are there. We are in settlement negotiations with one of our licensees. So that is hopefully coming into place this year. And then there is the underlying opportunities around the pure smartphones when it comes to IoT, automotive, et cetera, that should support growth coming into this year as well. So that's a little bit the balance -- the pieces that will drive some opportunities.

Thanks, Felix. Moving to the next question, please. Next question is going to come from the line of Ulrich Rathe at Bernstein.

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

I think to -- if you think about it from a little bit longer-term perspective, and it's going to fluctuate, right? But the size of the mission-critical market and the enterprise opportunity as well as 5G core that contributes here, 5G core, by the way, you should remember, it's only about 1/4 of all networks that are upgraded to stand-alone today, so there is a rather sizable opportunity there. So when you look at those outlooks, those individual pieces, they are large enough to a drive pretty nice long-term growth. It's not going to be double digits, as you say. So that -- take that out, but it may be low- to mid-single digits.

And I think the -- that's what makes me a bit excited is actually to think about it from that kind of at least some basic growth and you add on operating leverage on that, you add on what we're seeing on the enterprise that we're going to get that to profitability and you combine that with share buyback, you actually get a very healthy growth profile. So I think there is something here that I think from a little bit longer-term perspective is rather exciting.

Thanks, Ulrich. Moving to the next question, please. Next question is coming from the line of Sami Sarkamies at Danske Bank.

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

We selected a strategy several years ago to basically disaggregate the software and hardware and actually allow our software to run on pretty much any architecture. And of course, here, we can run on, of course, the x86, but it can run on GPUs. It can run on our proprietary Silicon as well. And by the way, you could well see the TPU from Google. You could see what Qualcomm is coming with AMD, et cetera. So we wanted to be a bit independent of the selection of the hardware layer.

The reason for doing that was that we felt it was the right strategy to give the customers the opportunity to choose what hardware layer they want to run on. And you know today, there are operators rolling out cloud RAN. That's on x86. In the future, it may be different. So I think the -- I cannot comment on Nokia's decision, that's for them to comment on.

But from my point of view, I -- we wanted a very different strategy, not to select the infrastructure layer today, but rather do that as we come closer towards AI RAN realization and 6G, then we can make an intelligent choice together with our customers. And we feel good about that strategy, but that also means that we're going to continue to work with the x86 ecosystem and the GPU ecosystem.

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

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

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

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

Yes. I think you can assume -- we're not going into details exactly what our business is because we're working with a number of defense organizations. As you know, Ericsson exited all defense several years ago. So we haven't really had a presence. So today, we're working in partnerships as well as with defense organization.

So we're not going into details there. But -- and I think when you look at the overall sizing, the revenue opportunity, there are a number of consultants out there talking about the size of that opportunity. We -- and some are very big numbers. I'm not sure it's going to be that. But we think it's compared to the rest of the opportunity we have is sizable.

When we talk about it from an investment point of view, this is more saying that we will ramp up our presence in here and actually increase our investments. It's not going to be material compared to our overall SEK 50 billion we spent on R&D. So that's why we also say that it's part -- it can be -- well be offset, maybe not fully, but by the efficiency gains that we're going to do. So when you look at it from a total point of view, think about it as there is a big opportunity we will try to invest to get that. We're not going to materially impact our outlook with that. That's not the case. But we want to single it out as a growth opportunity.

And I think on your question there on CapEx, it's very, very limited.

Yes, that's fair. That will be -- you will not see that as a CapEx need.

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

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

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

No I think that -- we don't guide that way, we've elected to do it quarterly and I think that's why we do it quarterly. What I -- I do think it's fair to say that when we look at the North American market -- and by the way, this is actually a global phenomenon. But when you will hear, I think our customers talk a bit about being cautious on CapEx, the interesting thing is we also see a change in mix in our customers.

So we believe we're -- the active components are going to be needed because that's driven by the traffic growth and the need to go 5G stand-alone as well as new use cases like fixed wireless access. So when you see that, you actually see, call it a healthy investment level, even though our customers most likely will guide for a bit lower CapEx without knowing they need to guide on their own, but it's given signals that you can hear and it's pretty clear, they will be cautious on CapEx.

Thanks for the question. Moving on to the next question, please. The next question is going to come from the line of Andrew Gardiner at Citi.

Just coming back to a point you made earlier in your presentation regarding the performance that you've had over the course of 2025. Your profitability has improved noticeably last year. You've had 2 good years of operational cash generation. And so that is putting Ericsson, as you point out, in touching distance of the long-term financial targets.

That being said, these targets are some years old at this point. Are they still relevant and accurate targets for us to use in the market? Or given the changing state of your end markets and your strong execution, is there the possibility to do better, right? Do you have the ambition to perhaps outperform those somewhat old targets at this point?

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

Thanks for the question, Andrew. We just have time for a brief follow-up question from one of the analysts before we close. So if we can bring Daniel back in, Daniel Djurberg, Handelsbanken.

I would like to ask a little bit on the Cloud Software and Services. Sorry, if I missed the answer before. But could you help us to understand a little bit more on this impact of this large contract being in most -- in the quarter i.e., with the outlook comments on Q1 seasonality have changed to more of a similar view if the contract has been excluded in Q4?

It's a good question. Now as we said, we are coming out strong in Q4 here with -- and as you know, we have lumpiness when it comes to project deliveries, which are -- if you look at the full year, we are up around some 6% organically in Cloud Software and Services. And I think that has been a good underlying growth that we have seen, supported by the core business, and that is what we see as a healthy level coming into '26.

Then, of course, if that single comment would bring us back to normal, I think that's a little bit -- it would, of course, bring us closer for sure. That is true. And then we should remember, I think you have all seen that, that we have a significant currency headwind coming in, in Q1 year-over-year as a comparison that you will see currency rates peaked somewhat in Q1 '25. So that headwind we also are facing here.

Look forward to see you in Barcelona.

Thank you.

Thanks.

Thanks, everyone, for joining. That concludes the call.

Thank you.

Hello, everyone, and welcome to the presentation of Ericsson's Third Quarter 2025 Results. Joining us by video today is Börje Ekholm, our President and CEO; and in the studio, I'm joined by Lars Sandstrom, our Chief Financial Officer.

As usual, we'll have a short presentation followed by Q&A. And in order to ask a question, you'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 the annual report.

I'll now hand the call over to Börje and Lars for their introductory comments.

Thanks, Daniel, and good morning, everyone, and a big thank you for joining us today. So we delivered a strong Q3 with continued expansion in our EBITA margin despite the FX headwinds. I would say that reflects our execution against both operational and strategic priorities over the last couple of years.

We're optimistic about the growing demand for advanced mobile connectivity as AI is starting to be rolled out. By structurally improving our cost base, we have positioned Ericsson to deliver resilient margins, also in the current market backdrop, which will give further benefits from improving operating leverage when growth comes back and actually comes in reality.

Beyond operational improvements, of course, we focus on technology innovation, and that positions us well for the next key driver of our industry, the broader adoption of AI. As AI workloads move to the edge, demand on the network will increase significantly. These AI applications and AI devices will require wireless technology by placing, but it will also place new demands on the connectivity, such as ultra-low latency, high dependability, guaranteed uplink and very high security demands.

So best effort connectivity. Think of that as WiFi, 4G and 5G non-standalone will simply not be enough. So to cater to these new type of demands, operators will need to invest in and migrate to 5G standalone networks and later, of course, migrate into 6G. Their success here will depend on high-performing programmable networks. And here, Ericsson is a leader. And we're also seeing some front-runner operators now starting to realize new monetization opportunities of network slices as well as efforts to provide differentiated connectivity to different segments and different type of applications.

So now let me move on to some key financial and strategic takeaways before Lars dives into the numbers. So organic sales declined by 2%, but we saw growth in 3 out of 4 market areas with only the Americas reporting reduced sales following a particularly strong deliveries in Q3 last year. FX continues to be a headwind, and we had a negative year-over-year impact of SEK 4.2 billion this quarter.

As mentioned, we saw positive development in our margins. Gross margin came in at 48.1%, and we delivered another 3-year high EBITA margin of 14.7%, excluding the capital gain from the iconectiv side, and this is now starting to approach our long-term target. The margin expansion reflects actions we've taken over the last years to increase operational excellence and efficiency, including the work we've done on our cost base.

Over the last year, we've reduced our headcount by some 6,000, leveraging new ways of working, and that, of course, includes AI. As we plan for a flattish market also going forward, we will continue our cost measures on levels similar to what we've done in the past years. The effect of actions we have taken over the past years are now kind of flowing through the P&L and establishing the profitability at the new level.

Our continued focus on cost management will provide incremental benefits going forward, but it will also give operating leverage should the market improve. We ended the quarter with an elevated cash position, that's driven by strong recurring cash flow, but also, of course, the iconectiv sale. As a result, we see scope for increased shareholder returns through extra dividends and/or share buyback program. And the Board will revert with the proposal in time for the AGM, as you know, is the practice or is the Swedish governance model.

In parallel with strengthening the company operationally, we're continuing to execute on our strategy to capture a bigger share of the value created by connectivity. So let me expand that a bit further. In our core mobile infrastructure business, we signed new customer agreements in the strategically important Japanese market following our recent R&D investments. With Japan being one of the countries with a strong industrial base in such areas as automation and one of the densest networks that have still not built out 5G coverage, we see this as a key market going forward.

We also increased our share in the U.K. with an 8-year partnership with Vodafone-3 to supply a significant majority of the mobile networks and the entire core network. And this morning, we announced a 5-year strategic agreement with Vodafone in Europe for programmable networks, where we remain their primary vendor with more or less stable market share.

Within the telco market, new monetization opportunities are needed to drive more network investments by our customers. So we continue to execute on our strategy to create new use cases for mobile networks. For example, we're seeing good development in fixed wireless access, where customer satisfaction is typically higher than for fiber due to the ease of use of cellular or wireless technology.

In the quarter, we announced a contract with Bharti Airtel to support their fixed wireless access rollout with Ericsson's core network portfolio. And we're starting to see good traction in mission-critical including, of course, defense. We're also taking important steps in our strategy to create a market by exposing the capabilities of the networks through APIs. This remains one of the key opportunities for us to capture more of the value created on top of the networks. And as you know Aduna, our JV with the large operators for network APIs, closed this past quarter.

Revenues are still small, but we see the uptake in Vonage API business is actually starting to come through. And we see that in areas such as fraud protection as an early use case, but also in industrial applications. And today, we have already applications live in the market. Also, in Vonage, we're expanding our ecosystem partnerships with AWS and added marketplace presence and product integration.

So now let me comment a bit further on the market development we saw in Q3. In market area Americas, sales declined by 8% year-over-year with declines both in North and Latin America. This follows, of course, a very strong Q3 deliveries in 2024, where we had high deliveries to a number of large customers.

Latin America continues to be a competitive market with overall low investment levels. Sales in Europe, Middle East and Africa grew by 3% year-over-year. But if we look closer at the region, we saw a very strong development in Africa, partly driven by new 5G launches in Egypt and Morocco.

In both the Middle East and in Europe, sales declined, and we continue to see European customers being cautious with investments. In Southeast Asia, Oceania and India, sales increased by 1% year-over-year, and India continues to have rather low investment levels, but it actually grew quarter-over-quarter.

We saw a decline in networks, partly due to the low level of network investments in India, but also stiff competition in Southeast Asia. Cloud software and service, on the other hand, saw an increase in sales. Lastly, sales in Northeast Asia increased by 10%. That was due to higher network investments and deliveries in Japan.

In the quarter, we were awarded new agreements with customers in the Japanese market, including enhancement of SoftBank's 5G SA network, where we have clearly increased our market share. Overall, I would say that we continue to have good discussions with all our customers in Japan.

With that, I hand over to Lars to go through the financials in more detail.

All right. Thank you. So net sales in Q3 totaled SEK 56.2 billion, with organic sales declining 2% year-on-year. Most regions grew, but North America declined, mainly reflecting tougher comparisons with a high period of customer investments last year. At the same time, reported sales decreased by 9%, impacted by a negative currency effect of SEK 4.2 billion.

Taking a look at IPR performance. Revenue declined by SEK 0.4 billion year-over-year, now standing at SEK 3.1 billion for Q3. It's worth noting that last year's quarter included retroactive revenue, so that skews the comparison slightly. The run rate coming out of Q3 is still around SEK 13 billion.

In Q3, adjusted gross income was SEK 27 billion, including a currency headwind of around SEK 2 billion. We saw an improvement in our adjusted gross margin, reaching 48.1%. And this positive development is a result of our cost reduction measures and operational excellence in both Networks and Cloud Software and Services.

Looking at gross margin sequentially, we held stable even though we lost a temporary boost from the Q2 IPR settlement. Excluding IPR, the improvement was around 2 percentage points. In Networks, this benefited from organizational effectiveness in the market areas with well-planned and executed service delivery. This helped also manage supply effectively and further optimize inventory. And in Cloud Software and Services, the improvement is mainly coming from services, where we are continuously improving our delivery performance.

On the cost side, we made steady progress. Operating expenses, excluding restructuring charges, dropped to SEK 19.3 billion, around SEK 2 billion lower year-over-year. Of this, about half came from our cost initiatives, and the rest is mainly currency. Excluding the iconectiv gain, adjusted EBITA came in at SEK 8.2 billion, up by SEK 0.4 billion, including a negative currency impact of SEK 1.2 billion. The EBITA margin was up around 2 percentage points to 14.7%. Behind this improvement is the good progress we have seen in terms of optimizing operations and lowering our operating expenses. Cash flow before M&A was SEK 6.6 billion, driven by earnings with net operating assets broadly stable.

Let's move to the segments. In Networks, sales decreased by 11% year-over-year to SEK 35.4 billion with a negative currency impact of SEK 2.8 billion. Organic sales decreased by 5%. We saw organic growth in market area Northeast Asia, driven largely by Japan, which Börje already mentioned. Europe, Middle East and Africa also grew, driven by Africa. Sales declined in market area Americas and in Southeast Asia and India. Networks adjusted gross margin increased to 50.1%, benefiting from cost reduction actions and operational efficiencies despite change in the market and product mix.

Looking at the right-hand graph, the rolling 4 quarters adjusted gross margin reached 49.9% and stabilized at the new level. Adjusted EBITA in Networks decreased by SEK 0.9 billion to SEK 7.2 billion, including a negative currency impact of SEK 1.1 billion. EBITA margin of 20.3% remained stable compared to last year.

Then moving to Cloud Software and Services, sales increased by 3% year-over-year to SEK 15.3 billion, which includes a negative currency impact of SEK 0.9 billion. So organically, sales grew by 9%, mostly driven by higher core sales across all market areas. Sales growth was helped sequentially by a softer Q2 as well. Adjusted gross margin came in very strong in the quarter at 43.6%, an improvement of 5 percentage points compared to last year. This was a result of the continued focus on automation, efficiency, commercial discipline and delivery performance.

And looking at the right-hand graph, the rolling 4 quarters adjusted gross margin reached 41.3%, a new high level. Adjusted EBITA increased to SEK 1.9 billion with a margin of 12.5%, supported by higher gross income, lower operating expenses and effective implementation of our strategic initiatives, including AI and automation investments and our commercial discipline.

In Enterprise, sales decreased by 20% impacted by divestments in currency. So organic sales were down by 7%. Global Communications platform declined by 9%, reflecting the decision to scale back activities in some countries last year. The financial impact of this is now largely behind us, so we expect Enterprise sales to stabilize on an organic basis in Q4.

Adjusted gross margin declined to 51.6% driven by the iconectiv divestment. Margins improved in both global communication platform and enterprise wireless solutions. Taking out the contribution from Aduna and iconectiv, which were divested in the quarter, adjusted EBITA landed at minus SEK 1.1 billion.

Turning to free cash flow, which was SEK 6.6 billion before M&A, a decline from SEK 12.9 billion in Q3 2024. So last year, our cash flow received a boost from a reduction of operating working capital, driven by the completion of large-scale rollout projects and lower inventories. Operating cash flow was SEK 7.9 billion in the third quarter this year, driven by earnings with net operating fairly stable. Net cash increased by SEK 15.8 billion compared to last year, of which around SEK 10 billion was from M&A. Net cash has now reached SEK 51.9 billion.

Next, I will cover the outlook. The outlook assumes stable exchange rates and no changes in tariffs. For Networks and Cloud Software and Services, we expect Q4 sales growth to be broadly similar to the 3-year average quarter-on-quarter seasonality. And as mentioned before, we expect Enterprise sales to stabilize year-over-year on an organic basis.

Next, then gross -- Networks' gross margin, we expect Networks adjusted gross margin to be in the range of 49% to 51% for Q4. Restructuring charges for 2025 are expected to remain at an elevated level and with a flat RAN market, cost out remains an important lever also for next year.

With that, I will hand back to you, Börje.

Okay. Thank you, Lars. So our Q3 report highlights our laser focus on both strategic and operating priorities. Our strong results are a reflection of the actions we've taken to structurally improve our business in the past few years. This, of course, includes both the work we've done to improve our cost base and the way we run the business with greater operational efficiency and commercial discipline. The results of these efforts are now clearly visible in our P&L, and we expect them to continue supporting performance going forward.

On the commercial side, we continue to strengthen our competitive position in mobile networks, and we're seeing good traction in key markets. This is a reflection of our technology leadership and the strength of our portfolio. And that has most recently been reconfirmed by both Gartner as well as Omdia.

With programmable high-performance networks, our customers are well prepared for the growth in AI applications by having the best network for AI traffic. Our Open RAN-ready portfolio includes over 130 radio models and our future-proof, hardware-agnostic software architecture that is AI native, support both our own silicon, Ericsson Silicon and third-party CPUs and GPUs and is already integrated with more than 10 third-party radios.

To put Ericsson on a growth trajectory, we're executing on our strategy to expand the monetization opportunities of the network. Here, we're taking some important steps, of course, including our work in fixed wireless access, mission critical as well as maybe more importantly, we're exposing to developers, the network features through network APIs to drive innovation. This will make it possible for Ericsson and our CSP customers to capture an increasing share of the value created from connectivity, which so far, as you all know, have been going to hyperscalers and over-the-top players.

Of course, creating new cases and new markets takes time, but we're moving from proof of concept into commercial deployment. And this is reflected in our Enterprise segment, which we expect to stabilize in Q4. We will continue to invest in technology leadership to ensure that Ericsson is leading in both its core mobile infrastructure business, by having the best network for AI, and of course, into 6G, but also leading the development of new use cases and new applications of wireless networks.

Looking ahead, we expect AI applications as well as AI devices to be increasingly the key driver of further investments in the networks. At the same time, we're facing a dynamic external environment with geopolitical uncertainty and the RAN market that has been flat for the last couple of decades. So we continue to take actions to structurally improve our business through rigorous cost management, including, of course, leveraging AI to change ways of working internally. This way, we're ensuring that Ericsson will continue to succeed across varying market conditions.

Before we turn to Q&A, I would like to say a big thank you to all my colleagues for all their hard work in making these results possible.

With that, let's open up for Q&A, and back to you, Daniel.

Thanks, Börje. We'll now move to the Q&A section of the presentation. [Operator Instructions]

Operator, we're ready to open the line for the first question.

The first question this morning will come from Andrew Gardiner at Citi.

So I wanted to follow up, Börje, on the point you were making about the sort of level of sustainable margins that you're achieving at the moment. Another quarter where you're at the top end of the guidance range that you provided back at 2Q. So just thinking historically, oftentimes when Ericsson would talk about gross margins, and in particular, talking to us in the financial market about what we could expect into the future, it was all about mix, and in particular, regional mix. But you've seen over the last year or so that regional mix has been dynamic, as you suggest, and yet you're still delivering pretty consistent gross margins quarter after quarter.

Should we be looking less at the regional dynamics as we look into 2026 and beyond? And if so, can you just help us understand what within the business, particularly around the cost-cutting and the product costs that you've now been able to get to sort of this sustainable level of gross margins regardless of whether U.S. is up or down or India is up or down. A bit more detail there would be really helpful in terms of thinking to next year.

Thanks, Andrew. Great question. I would -- if just I start, maybe Lars fill-in, but the reality is we've been working over a number of years to structurally improve a couple of things in the business. One is the way we operate our supply chain, clearly. That's been -- of course, COVID disturbed it a bit, but those improvements we've been working on for a couple of years. And the last, I would say, year, we've had more COVID free supply chain, and that has, of course, helped. And that's what you see now coming through. I would say that's one of the key part.

The other is on service delivery, where we have improved the way we operate internally by structurally taking out costs. All of these improvements we've done. In a way, actually, it takes out a bit of the mix dependency. We still have a mixed dependency on software, services and hardware in reality, but it's less so of a geographic exposure.

So that's why, when you look going forward, there is still a mix dependency for sure, geographic, but the underlying improvements are coming through in other areas, where we still have a bit more to do. I think we can be even better on service delivery and actually leverage automation much more, and we can, for sure, be better on OpEx, but that you'll see come through already, but I think we have more to do there, primarily by leveraging AI and changing our ways of working.

I don't know what you want to add, Lars?

I think you covered the full P&L pretty well. And I think, as you highlighted there, it is really the product mix in the market that can vary between quarters depending on share of software, hardware, et cetera, and that is driving customers moving more and more into our advanced products with the margins that will come. That is also making it more even between different regions.

Thanks for the question, Andrew.

Moving to the next question, please. The next question today will come from Erik Lindholm-Rojestal from SEB.

One question from me. So Börje, you mentioned some -- you mentioned Edge AI being a key driver to future network investments. And I just wanted to hear your thoughts here. I mean, is this something you are seeing in discussions with operators already today and that operators, they are sort of acting on? Or is this more of something you see in the coming years?

Yes. If you look at so far, most of the AI investments have in reality been in the data center part for the -- for developing and training models, right? We see the market increasingly moving towards inference. And that, I would say, is going to be much more latency sensitive. And therefore, it will start to move out towards the edge. And here, we're -- I wouldn't point to an operator that have done investments, but we're starting to see certain application demanding edge compute and edge AI or whatever you want to call it.

So I'm actually relatively hopeful that this will come through. It's not going to be next quarter. It's not going to be Q1, Q2. The amount of capital going into the big data centers, that's going to continue. But as applications start to pick up, I think the need for edge compute will be clear. So if you start to think about it, the next step is we've been smartphone-centric in the past. We may well move into other types of form factors. So think about AI glasses, that will require much more low latency performance to be really usable.

So as we start to see that coming through, and there have been some launches of devices that actually will require a new form factor and will require new capabilities in the network. So I do think this is starting to happen, but I would still say we take a bit of a prudent look at the market, adjust our cost structure to that prudent outlook, and then, when the demand comes, then we'll be well positioned to capture that through our technology leadership.

Thanks for the question, Erik.

Moving to the next question, please. The next question will come from the line of Sébastien Sztabowicz at Kepler Cheuvreux.

On Cloud Software and Services, your business has accelerated quite substantially in the third quarter with the ramp of 5G Core deployments in many areas. You still see 5G Core picking up again in the fourth quarter and moving into 2026, and is it something that could trigger some upgrades to 5G advanced in the coming quarters? And could it have some positive implication to your mix and gross margin in the coming quarters?

Do you want to take this one, Lars?

On the financials, then you can fill in on the 5G connection there. But I think when it comes to core, we see a good development there and have seen for quite some time, and that is coming through now when other parts of the portfolio is stabilizing here when it comes to managed service, et cetera. So then, as I mentioned before, also Q2 versus Q3, Q2 was a bit slow. So we got a bit of a boost in the growth rate here in the third quarter.

But having said that, we still see good development going forward also in managed services or in Cloud Software and Services, including then, of course, core that we highlight here where we are seeing good position, good reception in market. And to focus on stable, resilient network is very high among our customers. And I think we see that we have a good position there.

I don't know if you want to add more on top of that, Börje?

Yes, I can add. The one thing which is important is, of course, that the operators need to migrate to 5G stand-alone, and that is something that's going to be required in order to deliver the capabilities of 5G. So when we have spoken in the past of low latency, very high bandwidth, network slices, et cetera, it's all depending on being on 5G SA. And so far, it's, I would say, 1 in 5 operators or 1 in 5 networks maybe are upgraded.

There are a couple of big operators that have really solid 5G SA networks now, and they are also starting to realize extra revenues from network slices, from differentiated offerings. So we're seeing that they need to do that migration. And when it happens, it will help our business both in mid-band coverage, but it will also, of course, be in 5G Core. So the position we have in 5G Core is clearly today about leading, and I would say we stand to benefit from that migration that's going to happen over the next few years.

So I actually think in that sense, we can be -- we should be optimistic about the prospects. Still, we run the business based on more flattish assumptions. So we run the right cost structure and get the full operating leverage when growth comes. So a little bit of the explanation of the better margins in Q3 is actually the operating leverage we get from growth as well.

Thanks for the question, Sébastien.

Moving to the next question, please. Next question is coming from the line of Andreas Joelsson of DNB Carnegie.

I have a question on the cash flow. Börje, the CEO statement, you mentioned that it's a recurring cash flow, which is a phrase at least I have not seen before when it comes to Ericsson. Can you explain a little bit what you mean with recurring cash flow? Is it because of a better cost base that makes the cash flow less volatile? Or how should we see that recurring cash flow?

I could start, maybe. So that is -- the key is that we are a project business, right, and have been. And I think we have put more efforts into a couple of things here. One is to improve the cost base, so we have less exposure to that. We're also gradually changing the way we sell our product, and that will increase the portion of software revenues coming in different models and kind of advanced services also coming in different models. When you put all of that together, we feel more comfortable about the stability of our cash flow generation going forward. And therefore, we start to talk about the recurring underlying ability to generate cash flow, but it comes out of a couple of changes to cost structure and business model.

Thanks for the question, Andreas.

Lars, anything to add?

No, I think that comment is, of course, we will have that can be swings within 1 or 2 quarters, that is normal in the project business that we have. But as Börje said there, we are working actively to sort out. So we have more the terms and condition in a way that also support more solid cash flow and reduce volatility. So that is what we have been working with for quite some time. And I think we can see the result coming out of that.

Thank you.

Moving on to the next question, please. Next question is coming from Sandeep Deshpande at JPMorgan.

Yes. Can you hear me?

We do well.

My question is you're guiding to seasonal growth in both networks and the CNS business into the next quarter, but also flagging our increased uncertainty. Does this mean that if there was increased uncertainty that there will be a change to this growth in the fourth quarter? Or -- and which is the areas in which this increased uncertainty is coming from if there is incremental increased uncertainty that you're pointing to? Or it is just ongoing uncertainty?

When it comes to the guidance for the fourth quarter, this is what we see now coming into the fourth quarter. And as you know, for us, our business is very back end heavy in the quarter, so -- but this is still what we see now. And when it comes to increased uncertainty, it's not so much maybe in the quarter per se, but really a little bit long term. There is an ongoing discussion on tariffs, as we all follow that could impact us or our customers, et cetera. So I think that is more what we are pointing to that area.

So do you mean that if the increased uncertainty diminishes that your -- you should do better than normal seasonality in the fourth quarter?

No, that is not what we are saying. We are pointing to the reality that we live in.

Thanks, Sandeep.

Moving to the next question, please. Next question is coming from Daniel Djurberg at Handelsbanken.

Congrats to a stable report. Yes, coming back to recurring changed business model on Cloud Software and Services, can you share with us ballpark the percentage of revenue that you consider being a recurring nature or at least a large part of the 5G Core revenues that is recurring?

No, we don't go into those kind of agreements, but what we can say or share, so to say, but what we can see evolving here going forward, continuously, what we are doing is moving into more and more recurring, but also a model based on more connected to the utilization, which as utilization of networks increase also has an impact on our revenues. And that is maybe a little bit achieved from what we have had historically, where we had more kind of fixed price models. So I think that is also supporting our revenue going forward.

Thanks, Daniel.

Moving to the next question, please. The next question is coming from Jakob Bluestone of BNP Paribas.

I had a question on your OpEx. I was wondering if you could maybe give us a little bit of an update on what your sort of current thinking is in terms of OpEx evolution. I guess, second half or Q4, I think you previously said you expected better than normal sort of H on H for the second half, but talk to that Q3 now, which is pretty good. Just kind of any thoughts sort of around OpEx next quarter and also how you see that perhaps evolving a little bit longer term as well?

Yes. When it comes to Q4, I think what we say, we had quite a big impact last year connected to incentive provisioning there. And we -- that was sort of hurting or impacting the numbers there. But otherwise, it's rather normal seasonal. There is normally a bit of an uptick from Q3 going into Q4. So that is what we expect there as well this year.

And when it comes going forward, as we talk about, we live in a flat RAN market, that is our, so to say, planning assumption, and that means that we need to continuously fight with inflation coming through, including salary increases. And just to keep flat, we'll require further activities on the cost side. And we will do that also going forward that I think is also part of the outlook that we say that remaining elevated levels. And that work will need to continue.

And as Börje mentioned, we have -- just compared to a year ago, we are some 6,000 people less in the group, and that work will need to continue also going into next year.

Thanks for the question, Jakob.

Moving to the next question, please. Next question is coming from the line of Felix Henriksson from Nordea.

It's on the North American market. We see some increased appetite for mobile spectrum as witnessed by, for example, AT&T's spectrum acquisition from EchoStar recently. When you discuss with your local clients in North America, how do you expect this sort of to translate into RAN equipment demand for you guys in the coming years?

Thanks for the question. As you know, the spectrum is the lifeline of our industry and the -- what keeps it ticking, and it's the scarcest resource in the industry. What the strategies are of our customers, how to deploy that spectrum, I think they should answer. So I'll keep an answer more on the generic level. But this is clearly something that, of course, spectrum and spectrum free up is important for an industry.

What we've seen in other markets, typically, it depends on your spectrum portfolio. So how does it fit into your spectrum portfolio, is it adjacent to some existing spectrum? If it is, you can most likely use some of existing equipment. If it's actually other spectrum, you will need more hardware. You will need software upgrades.

And what we have typically seen in other markets is it actually drives CapEx in the total market because clearly, you're going to have more capacity, better performance of the network as you use more spectrum. And therefore, other operators to match that typically need also to invest a bit more. So overall, getting into a market where spectrum kind of is actually increasing deployed will typically help the total market and will actually help the customer experience at the end of the day.

So in this case, let AT&T comment on their strategy. But I think it is worthwhile also to say that we had, as you may know, no market share with DISH. So let's see where this pans out, but AT&T talks about their own plans.

Thanks for the question, Felix.

Moving to the next question, please. Next question is coming from the line of Ulrich Rathe from Bernstein.

Yes. I wanted to latch on to an earlier question on OpEx development. In the R&D spending, that's down 12% year-to-year -- sorry, year-on-year. You're highlighting in the report 3 percentage point effect. So that's still a very material cut on the R&D spend. Could you comment what measures you use to make sure that you're not underinvesting because there is, of course, in history in the industry, in the equipment industry of underinvestment and sort of result in competitive issues? How do you make sure that the R&D cutbacks don't lead you into that future?

I can just give you a comment on the financials first before you answer as well, Börje. I think you need to remember the currency impact on the OpEx that we have. And as I mentioned here in the beginning, we have around SEK 1 billion in currency impact, and that is, of course, also in R&D. So if you look at Networks, R&D spending, taking out FX is actually rather stable, whereas in Cloud Software and Service, we have done work last years to reduce in some areas in the R&D and made prioritization in the product portfolio, and we had some extra cost on the transition that we did within R&D in Cloud Software and Services last year. So they were a little bit elevated. So you should not see this as a big reduction in R&D spend actually. Then, having said that, we continuously evaluate the different parts of the portfolio, where we spend our R&D and make decisions in that.

Anything you would like to add as well on that, Börje?

Yes. Just to be clear on a couple of things. So yes, we have -- we -- to actually turn around BCSS, we needed to focus the portfolio a bit. So we actually said in a couple of areas, we're not going to compete. So those we have actually exited. That helps the R&D spend. It doesn't impact necessarily the output where you need to win, right? So that we've done.

Then, as Lars said, in a bit of cryptic, but the geopolitical situation has required us to shift resources a bit politically. That led to, as we went through that whole transition, that we duplicated a large part of R&D spend that have now -- we don't need to have that anymore as we have relocated R&D, so rebalanced R&D. So that actually is another part.

So yes, your question is well taken. We should always worry that to be competitive we need to spend enough to do that, and we need to really be competitive with the Chinese. So our ambition is clearly to benchmark ourselves there. So it's going to be their ambitions that drive our scaling of R&D. That's been the case for the last several years, at least during my tenure, and it will continue to be the case going forward. So we are not going to jeopardize technology leadership.

And if we feel that there is any risk, and that's a risk I don't see today, then we would, of course, need to reassess. But as I see it, this is a natural -- yes, the FX part you can take out, but the other one actually of removing duplication, that's been the key driver and something that was in the plans to do. Just don't -- you didn't want to talk about it until it was done.

Thanks, Ulrich. Thanks for the question.

Moving to the next question, please. Next question is going to come from the line of Simon Granath, ABG.

And so on CSS, it once again delivered a quarter with year-on-year growth and strengthening margins. Now, the rolling 12-month margin is at some 8%. So I'm curious to hear on what sort of ball tank levels we should expect in the medium term.

And then a question connecting to this, you continue to emphasize that 5G stand-alone is needed for the operators to fully leverage the networks. And with 5G, there has clearly been a mismatch between deployment of 5G stand-alone and non-stand-alone. But as we look into entering 6G in a couple of years, do you think that the matching will be better, and thus, the leverage of the networks?

Maybe Lars briefly first on the margin.

We have said to ourselves to work towards a solid double-digit margin in Cloud Software and Services, that is the first step that we are working on. And you can see here, in this quarter, you really see the impact on having a bit of growth on top and the leverage impact that gives together with continued tight ship on the cost side, it really pays off. So that is a continued work on that.

And then on the 5G SA and 6G question there, Börje.

Yes. The -- it's -- the 6G will most likely be defined in the next few years, right, with first commercial sales. Everybody talks about 2030, I think it will be a bit earlier than that. So having said that, I think it's important to keep in mind. What I do think is that the big change between 5G and SA and 5G SA is that with 5G NSA or non-stand-alone, the market kind of continued to sell 4G plus. It was the established business model of most operators around the world. So it became very natural to take that step. That didn't give -- and then use 5G almost as a marketing icon on the phone. But in reality, it didn't give the extra capabilities.

To get the extra capabilities, the operators would have needed or need to go to 5G SA. And I have no doubt that the new capabilities, call it, network slicing, call it low latency, quality improved security will be critical in applications over the next 2, 3 years that, that will require the operators to build out 5G SA. And by the way, when they have built out 5G SA, they will put themselves on the journey to upgrade to 6G when that happens.

6G will be much more AI cloud dependent. But actually, what you do in 5G SA paves the way into that world. And what's more important, by being in 5G SA, you create the monetization models that will be needed in 6G as well. So then you go through the, what I will call the business development portion and the changes in your go-to-market capabilities that you're doing during 5G and then you leverage that into 6G that will again provide better and stronger capabilities, but it will depend on new type of monetization. So that needs to happen.

Thanks for the question, Simon.

Moving to the next question, please. Next question is coming from the line of Sami Sarkamies at Danske Bank.

I still wanted to go back to the strong performance at Cloud Software and Services. I guess, you didn't call out any large deals, but were there any like positive onetime factors impacting third quarter?

And then thinking forward, can we assume that sort of the 8% run rate you've been able to achieve during the past 4 quarters? Is that something that you've been able to attain on a permanent basis?

Yes. In the quarter, in Cloud Software and Services on the question around, let's say, onetime items, I think it was actually quite a straightforward quarter. There's always a bit of product mix, et cetera, but it was, I would say, a normal quarter to a large extent. So that is on that.

And then the run rate, I think what we're trying to say is that we see that we have managed to increase our gross margins and keeping costs stable here and working -- continuing to work on that. That gives us a good foundation going forward. Then, we don't give guidance on run rate margins per se for segments, et cetera, so -- but I think we are coming out here in the quarter. And as you have seen the step-up over the last quarters, we have come to a new level that I think is good going forward as well.

The only thing I would add, Daniel, is the one big effect normally on the margins tend to be our IPR agreements, right? And that is nothing that impacts this quarter.

Yes. Thanks, Sami.

We'll move to the next question, please. Next question is coming from Richard Kramer at Arete.

I don't know if you can flesh this out at all, but you mentioned that you want to keep a solid net cash position. And while you're considering what to do with the SEK 52 billion you've piled up on the balance sheet, can you talk through what the parameters of a solid net cash position are? Is it a portion of your percentage of your OpEx? Is it something to do with the working capital demand? And can investors assume Ericsson will not be deploying some of that SEK 52 billion to M&A after your experience with Vonage?

When it comes to our net cash position, I think the message is that we want to have a solid net cash position, and that is foundational to ensure that we can maintain our R&D and our technology leadership, make sure that we have the trust of the customers. That is important that we as a partner with our customers have the financial strength to deliver long-term over the contracts and commitments we have together. So I think that is foundational for us.

And then, of course, if there are volatilities happening in the market, we should also handle those kind of movements. So that is not a change in that sense. And then also, when it comes to -- but we are coming to a position where we talk now about excess cash and that we need to manage. Also here, after now the divestment of iconectiv coming into our net cash position. And that is the signal that -- and the comment we do here in the report now that this is work that has been ongoing by the Board since that was announced at the last AGM, and that work continues. And I think there is a good work progressing.

We give the highlight here now in the quarterly report that we're looking at it. We're looking at the options of extra dividend and/or buybacks. But in Sweden, as we are a listed company here, the decision is made at the Annual General Meeting, which is taking place at spring. And normally, there is a proposal for the Board coming in connection with the fourth quarter report on that topic. So that's why it's coming at that stage.

And when it comes to your question around M&A as well, that has also not changed. We see -- we have the product portfolio we need to a large extent. There could be some bolt-on acquisitions coming to -- into the product portfolio when it comes to geographical spread, but no major ones. So that is also unchanged.

Thanks, Richard.

We have time for one brief final question. So one more question, please, into the queue. Final question today is coming from Rob Sanders at Deutsche Bank.

I just had -- I was just interested in an update on Germany. Given there has been some push to swap out Huawei and ZTE, there is this 2029 shutoff date, but there seems to be some resistance amongst the German telcos to actually go through with a full cleaning out of Chinese vendors. So I was just interested in just an update on that region, where clearly, your share is below what it is globally.

Börje, anything you'd add?

Yes. No, you're right. I would first say that there isn't a need to swap out Chinese vendors by 2029. So that you should keep in mind, that's why it's a slow moving. And I would say there is no real progress on that. But the legislation is rather clear that it allows high-risk vendors in the 5G network beyond 2029.

Thanks, Rob.

Thanks for everyone for joining us. That concludes the conference call today.