Ericsson Q2 2025 Earnings Report

Ericsson EPS Results

• Actual EPS: $0.14
• Consensus EPS: $0.12
• Beat/Miss: Beat by +$0.02
• One Year Ago EPS: -$3.34

Ericsson Revenue Results

• Actual Revenue: $5.84 billion
• Expected Revenue: $60.54 billion
• Beat/Miss: Missed by -$54.70 billion
• YoY Revenue Growth: -6.20%

Ericsson Announcement Details

• Quarter: Q2 2025
• Date: 7/15/2025
• Time: Before Market Opens
• Conference Call Date: Tuesday, July 15, 2025
• Conference Call Time: 3:00AM ET

Telefonaktiebolaget LM Ericsson (NASDAQ:ERIC) (publ), together with its subsidiaries, provides mobile connectivity solutions for telcom operators and enterprise customers in various sectors in North America, Europe, Latin America, the Middle East, Africa, North East Asia, South East Asia, Oceania, and India. It operates in four segments: Networks; Cloud Software and Services; Enterprise; and Other. The Networks segment offers radio access network (RAN) solutions for various network spectrum bands, including purpose-built and open RAN-prepared hardware and software. This segment also provides cloud RAN; transport solutions; passive and active antennas; and a range of service portfolios covering network deployment and support. The Cloud Software and Services segment offers core networks, business and operational support systems, network design and optimization, and managed network services. The Enterprise segment offers a global communications platform, including cloud-based unified communications as a service, contact center as a service, and communications platform as a service; enterprise wireless solutions comprising private wireless networks and wireless wan pre-packaged solutions; and technologies and new business solutions, such as mobile financial services, security solutions, and advertising services. The Other segment includes Redbee media that prepares and distributes live and video services for broadcasters, sports leagues, and communications service providers. It offers its services through wholesalers and distributors. The company was formerly known as Allmanna Telefon AB LM Ericsson and changed its name to Telefonaktiebolaget LM Ericsson (publ) in January 1926. Telefonaktiebolaget LM Ericsson (publ) was founded in 1876 and is headquartered in Stockholm, Sweden.

Ericsson Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Delivered 2% organic sales growth in Q2 with a 48% gross margin and a 13.2% EBITA margin, while reducing OpEx by SEK 3 billion and headcount by 6%.
• Negative Sentiment: Reported sales fell 6% year-on-year, driven by a SEK 4.7 billion currency headwind from a stronger Swedish krona against major currencies.
• Positive Sentiment: Achieved a fifth consecutive quarter of positive EBITA in Cloud Software & Services and expanded the Aduna JV to all three Japanese operators, covering major markets.
• Positive Sentiment: Boosting investments in AI and 5G Standalone—launched an AI Factory consortium in Sweden and are developing new monetization use cases like network slicing and fixed wireless access with 160 million subscribers.
• Neutral Sentiment: Outlook assumes a broadly stable RAN market for the rest of the year, with Q3 network sales below three-year seasonality and gross margin guidance of 48–50%, assuming current FX rates and no new tariffs.

Presentation

[Daniel Morris, Head - IR at Ericsson]

Hello, everyone, and welcome to the presentation of Ericsson's Second Quarter twenty twenty five Results. With me here in the studio today are Borje Ekholm, our President and CEO and Lars Sandstrom, our Chief Financial Officer. As usual, we'll have a short presentation followed by Q and A. Details can be found in today's earnings release and in the Investor Relations website. Please be advised that today's call is being recorded and that today's presentation may include forward looking statements.

[Daniel Morris, Head - IR at Ericsson]

These statements are based on our current expectations and certain planning assumptions, which are subject to risks and uncertainties. The actual results may differ materially due to factors mentioned in today's press release and discussed in this 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 over the call to Burya and to Lars for their introductory comments.

[Börje Ekholm, CEO, President & Board Member at Ericsson]

Thanks, Daniel, and good morning, everyone, and thanks for joining us today. So we delivered a solid Q2 with organic growth of 2% following the weak development the last few years and three year high in EBITDA margin as we continue to demonstrate strong execution against both our operational and strategic priorities. Milestones included a fifth quarter in a row of positive EBITA in Cloud Software and Services, and we continue to have the solid execution in Networks with good gross margin. We returned to sequential growth in Global Communication Platform following the market exits, and Aduna has now signed up all three operators in Japan. We achieved these results despite the fluid geopolitical and trade environment.

[Börje Ekholm, CEO, President & Board Member at Ericsson]

And let me give you some key financial and strategic takeaways before Lars dives further into the numbers. So as I said, organic sales grew by two percent with growth in market area Americas and in IPR and despite the temporary investment pause in India. We also saw increasing FX headwinds during the quarter, almost SEK 5,000,000,000 year over year. As I mentioned, we saw strong development in our margins. Gross margin came in at 48 percent, and we delivered an EBITA margin of 13.2%.

[Börje Ekholm, CEO, President & Board Member at Ericsson]

And importantly, the margin improvements was broad based across all segments. And we see here the cost actions we took during the last year, and it's now flowing through the P and L. And we continue, of course, to take actions to improve our cost base, and that should also provide benefits over time. While we expect the overall market environment or macroeconomic environment to remain fluid or dynamic, we expect the RAN market will broadly be stable for the remainder of the year. For the RAN market to return to long term growth, it remains clear that the industry needs new monetization opportunities.

[Börje Ekholm, CEO, President & Board Member at Ericsson]

To that end, we continue to execute on our strategic initiatives to create new use cases for mobile networks. The first major use case is fixed wireless access, now has more than 160,000,000 subscribers. And more interestingly, the Net Promoter Score is often higher than for fiber. So to take full advantage of five gs, operators need to transition to five gs stand alone networks because that will enable differentiated connectivity solutions. And it is now encouraging to see customers with five gs SA coverage actually offering service innovation like network slices for mission critical applications.

[Börje Ekholm, CEO, President & Board Member at Ericsson]

In addition to that, we see network APIs as one of the key monetization engines for the industry as well as for us. So far, revenues are small, but we see great interest in some initial API use cases, such as fraud detection. In the quarter, our joint venture, Aduna, expanded to all three operators in Japan. And with that, we now cover major markets with Aduna. In parallel to executing on our strategic priorities, we're focusing on strengthening Ericsson to succeed across varying market conditions, and that, of course, include discipline on pricing and cost.

[Börje Ekholm, CEO, President & Board Member at Ericsson]

And this is, in this quarter, reflected in OpEx coming down from last year as a result of all the cost actions we have taken. And over the last year, we have reduced our total number of employees by about 6% or 6,000, while we had organic growth, and it's good now to see that actually coming through the numbers. And we see opportunities to further reduce costs following structural actions like the combination of three market areas into two, but we also see and expect big benefits from the use of AI. And that's one of the reasons why we expect restructuring costs to remain elevated during the year. I think AI could be one of the absolutely most important technologies we've ever seen.

[Börje Ekholm, CEO, President & Board Member at Ericsson]

And for us, it's a key part in how we design and operate networks. So we're increasing our investments in the area. You might have seen this past quarter that we announced an AI factory consortium here in Sweden that will give us access to the latest chip and compute power. As we look ahead, AI will be a key driver for traffic in the networks as AI applications move to the edge, and we see that this will require five gs stand alone to fully support these new type of use cases. So for example, we're talking low latency and guaranteed uplink performance.

[Börje Ekholm, CEO, President & Board Member at Ericsson]

So this, for us, I would say, is really a fundamental area. So it's critical that we continue to lead in AI. So before moving on, let me comment quickly on the market development we saw in Q2. In Market Area Americas, sales increased by 10% year over year with good growth in North America, and that's, of course, encouraging as North America is often a front runner market. Both Networks and Cloud Software and Services grew, benefiting from previous contract wins.

[Börje Ekholm, CEO, President & Board Member at Ericsson]

The strength in North America was partly offset by lower sales in Latin America, where we continue to see intense competition from both Eastern and Western vendors. Sales in Europe, Middle East and Africa declined by 1% year over year. In Europe, sales actually increased slightly, supported by network modernization. Europe is also a market where we see high competition from all vendors. We're confident in our competitive portfolio and technology leadership, so we remain commercially disciplined as we approach the market.

[Börje Ekholm, CEO, President & Board Member at Ericsson]

In Southeast Asia, Oceania and India, sales decreased by 22% year over year. This was primarily due to the temporary pause in network investments in India related to specific market uncertainties. But Southeast Asia is also an area where we saw increased competition. Lastly, sales in Northeast Asia declined by 15%. This was due to reduced customer investments in some five gs front runner markets.

[Börje Ekholm, CEO, President & Board Member at Ericsson]

But in the quarter, we have made strong progress on our discussions with customers in the Japanese market. In line with this, we also announced, and I think you've seen that, we will set up an R and D center in Japan. With that, I would like to hand over to Lars to go through the financial details more in detail or the financials more in detail.

[Lars Sandström, SVP & CFO at Ericsson]

All right. Thank you, Baej. Let me start by giving some additional points to the group before discussing the segments. Net sales in Q2 totaled billion, with organic sales growing 2% year on year. Reported sales declined by 6% with a currency impact of SEK4.7 billion, driven by the strengthening of the Swedish krona against U.

[Lars Sandström, SVP & CFO at Ericsson]

S. Dollar and other currencies. IPR revenue increased to SEK4.9 billion in Q2 from SEK3.2 billion in Q1. The increase mainly related to previously unlicensed periods. The run rate existing in Q2 or coming out of Q2 is around SEK13 billion.

[Lars Sandström, SVP & CFO at Ericsson]

The adjusted gross margin for Q2 came in at 48%, up from 43.9% in Q2 last year. And margin improvements were broad based across all segments, driven by IPR revenue, favored product mix and cost reduction initiatives. It's worth noting that gross income had a negative currency impact of billion. Compared to Q1, gross margin was slightly lower, mainly due to lower gross margin in Networks, which was expected and which I will cover later. Operating expenses, excluding restructuring charges, stood at billion, around SEK3 billion lower than last year.

[Lars Sandström, SVP & CFO at Ericsson]

About half of this reduction came from cost initiatives and the rest is mainly currency. Even with the currency headwind of SEK1.4 billion, adjusted EBITDA went up by SEK3.4 billion, reaching billion. This improvement was driven by lower operating expenses and higher gross income, bringing the EBITA margin to 13.2%. On the cash flow side, before M and A, we reported SEK2.6 billion, which is down compared to last year. And last year's cash flow benefit was significantly from reduction in operating working capital, thanks to the completion of large scale rollout projects and substantially lower inventory levels.

[Lars Sandström, SVP & CFO at Ericsson]

So let's move to the segments. In Networks, sales decreased by 5% year on year to SEK35.7 billion with a negative currency impact of SEK3.1 billion. So organic sales increased by 3%. In market area Americas, organic sales showed good growth. Organic sales also grew slightly in the market area Europe, Middle East and North Africa, and sales in the other markets areas declined with the most significant drop in India.

[Lars Sandström, SVP & CFO at Ericsson]

IPR revenues also increased, supported by the settlement. The Networks adjusted gross margin came in at 49.5%, benefiting from IPR licensing revenue, cost reduction initiatives mix, partly offset by tariffs. Compared to Q1, margins declined somewhat in Q2 as expected. The positive impact from higher IPR licensing revenue was offset by less favorable market and product mix and, to some extent, tariffs. Networks adjusted EBITA increased by SEK1.2 billion to SEK6.5 billion despite a negative currency impact of SEK1.3 billion.

[Lars Sandström, SVP & CFO at Ericsson]

The EBITA margin improved significantly year on year, moving up to 18.2% from 13.9%. This was driven both by increased gross income and the lower operating expenses. Turning to segment, Cloud and Software and Services. Sales declined by 5% year on year to SEK14.4 billion, which include a negative currency impact of SEK1 billion. On an organic basis, sales grew by 1% with growth in market area Americas and IPR licensing, partly offset by declines in the other market areas.

[Lars Sandström, SVP & CFO at Ericsson]

Adjusted gross margin came in very strong in the quarter at 43.2. This was a result of a favorable sales mix with a higher share of software and increased IPR revenues, but also the continued focus on delivery performance and commercial discipline. Adjusted EBITA increased to SEK1.4 billion with a margin of 9.6%, supported by higher gross income and lower operating expenses and including a billion negative currency impact. In Enterprise, sales decreased by 14% and organic sales were down 6%. Organic sales in Enterprise Wireless Solutions grew by 5%, benefiting from higher product and subscription sales in Enterprise Networking.

[Lars Sandström, SVP & CFO at Ericsson]

And Global Communications Platform declined by 9%, impacted by the decision taken last year to reduce activities in some countries. We expect enterprise sales to stabilize during 2025 on an organic basis, excluding currency movements and the impact of iConnect, which is expected to close during Q3. Adjusted gross margin increased to 54.9%. This was driven by the focus on more profitable market segments in Global Communications Platform and stronger product mix in Enterprise Wireless Solutions. Adjusted EBITDA was minus billion.

[Lars Sandström, SVP & CFO at Ericsson]

Turning to free cash flow, which was SEK2.6 billion before M and A, broadly in line with previous quarter. And operating cash flow was also similar to Q1 at SEK4.1 billion, with the benefit of higher earnings broadly offset by changes in other operating net assets. Investing cash flow cash outflow was billion, reflecting investments in interest bearing securities. The net cash decreased to SEK2.6 billion compared to the previous quarter. Dividend payments of SEK4.8 billion more than offset the positive free cash flow in the quarter.

[Lars Sandström, SVP & CFO at Ericsson]

So next, I will cover the outlook. Global uncertainty continues with potential for further tariff changes and broader macroeconomic factors like currency and trade flows. This can affect customer behaviors and investment decisions over time. With that in mind, turning then first to sales. We expect Networks Q3 to be below three year average seasonality, and this is mainly reflecting the mechanical impact of the higher IPR licensing revenue in Q2.

[Lars Sandström, SVP & CFO at Ericsson]

In Cloud Software and Services, we expect sales growth to be similar to average three year seasonality in Q3. Both of these indications assume current exchange rates and no tariff changes. Next, Networks gross margin. We expect Network gross margins to be in the range of 48% to 50% for Q3. And with that, I hand back to you, Bae. Thanks, Lars.

[Börje Ekholm, CEO, President & Board Member at Ericsson]

So our Q2 results demonstrate solid execution of our strategic and operational priorities. We continue to strengthen our competitive position in mobile networks and expect the enterprise to stabilize during the second half of twenty twenty five, following global communication platform returning to sequential growth. It's encouraging to see continued momentum in our strategy. In our customer discussions, there continues to be strong interest in five gs stand alone networks that provide differentiated connectivity. And we're seeing new use cases to monetize the network investments taking shape, FWA, defense, mission critical, and we start to see different enterprise applications.

[Börje Ekholm, CEO, President & Board Member at Ericsson]

And many enterprise use cases are now moving from proof of concepts into real industrial deployments. I would say this is exciting, but of course, it takes time to create these new markets. Ultimately, the exact timing of investment decisions will be in the hands of our customers, but we believe the mobile network market will remain broadly stable for the rest of the year. In this environment, we continue to invest in technology leadership while also structurally improving our business through rigorous cost management and by improving working capital. This way, we're positioning Ericsson to manage short term market swings and drive margin expansion even in challenging markets.

[Börje Ekholm, CEO, President & Board Member at Ericsson]

At the same time, we remain well positioned for the long term and to drive growth in our business. But before we turn to Q and A, I would really like to thank all my colleagues for their really hard work in making these results possible. With that, let's open up for Q and A. So over to you, Daniel.

[Daniel Morris, Head - IR at Ericsson]

Thanks, Borje. We'll now move to the Q and A And if I can request as usual just one question per participant, so we've got time to hear from as many of you as possible today. Thanks. If we can take the first question. The first question today is going to come from Sandeep Deshpande at JPMorgan. Sandeep, please go ahead.

[Sandeep Deshpande, Analyst at JPMorgan Chase]

Yes. Hi. Thanks for letting me on. My question is about your guidance on the gross margin in the Networks business. You're guiding to a pretty robust gross margin into the next quarter.

[Sandeep Deshpande, Analyst at JPMorgan Chase]

In the second quarter, you had some positive impacts from the Lenovo deal that you signed in the quarter. So are you expecting to sign more deals in the second quarter, which helps the margin? Or is the mix shifting because of some particular reasons? I'm trying to understand the dynamics in the gross margin in Networks in the second quarter. Thank you in the third quarter.

[Lars Sandström, SVP & CFO at Ericsson]

Yes.

[Lars Sandström, SVP & CFO at Ericsson]

When it comes to the margin outlook there, this is what we see when it comes to the product and market mix that we have at hand now coming into the quarter. And it's not related to It's more the underlying margins that we see coming into the quarter. So that is what we expect.

[Sandeep Deshpande, Analyst at JPMorgan Chase]

So are you saying also that India will remain weak in the third quarter even though it was weak in the second quarter?

[Lars Sandström, SVP & CFO at Ericsson]

I think the pause that we saw now is temporary. When it will start coming back, that I think is difficult to say. So we don't have too high expectations already in Q3 for India.

[Börje Ekholm, CEO, President & Board Member at Ericsson]

One thing that is not don't take this as an India comment, but the last few years, we've actually worked quite a lot on reducing the sensitivity on gross margin to different margins. And we're in a better shape today than ever before, which makes it a bit more also predictable in that sense. Then some markets may go up, some markets may go down.

[Daniel Morris, Head - IR at Ericsson]

Thanks, Sandeep. If we move on to the next question, please. The next question is going to come from Sebastian Stabowicz at Kepler Cheuvreux. Please go ahead. Your line is open, Sebastian.

[Sébastien Sztabowicz, Head of IT Hardware & Semis Sector Research at Kepler Cheuvreux]

Yes. Thanks for taking my question. On the OpEx, it was a little bit below expectation in the second quarter. How do you see the OpEx trending in the rest of the year or for the full year? Are you still forecasting a flattish OpEx for this year?

[Sébastien Sztabowicz, Head of IT Hardware & Semis Sector Research at Kepler Cheuvreux]

There is a little bit of downside to the OpEx level?

[Lars Sandström, SVP & CFO at Ericsson]

Yes.

[Lars Sandström, SVP & CFO at Ericsson]

As you saw, the result of the activities we have taken over the last year is coming through in the OpEx here now in the second quarter. So that we are happy to see. It takes time before these activities really come through. When it comes to the outlook there, we see a similar level in OpEx in the first and the second half. Normally, we have a bit of a higher seasonality cost in the second half.

[Lars Sandström, SVP & CFO at Ericsson]

So that is a little bit how we see it going forward. But it as I said, it takes a bit time before the cost reduction starts kicking through into the numbers. So that's why we stay on this, so to say, view upon the second half of the year.

[Sébastien Sztabowicz, Head of IT Hardware & Semis Sector Research at Kepler Cheuvreux]

Okay. Thank you.

[Daniel Morris, Head - IR at Ericsson]

Thanks, Sebastian. Moving to the next question, please. The next question is going to come from Jacob Blumstone at BNP Paribas. Jacob, your line is open.

[Jakob Bluestone, Research Analyst at BNP Paribas]

Great. Thanks for taking my question. I was just wondering if you could just expand on any tariff related effects during the quarter. You previously guided for 100 basis point margin hit. Was that what actually happened?

[Jakob Bluestone, Research Analyst at BNP Paribas]

I didn't see a number. Were there any pull ins? And I guess if you can give any commentary on what your expectation is for tariff related effects in Q3 are?

[Lars Sandström, SVP & CFO at Ericsson]

Yes.

[Lars Sandström, SVP & CFO at Ericsson]

When it comes to tariffs, starting with the pull ins, as you remember, we had a bit of impact in Q1 with some pull ins and impacts on the product mix supporting the margin in Q1 there. This quarter has been more normal, you can say. And as for the impact, we guided around one percentage point. We came out around this one percentage point, a little bit lower here in the quarter, and that is we expect similar levels going forward, given what we know today. And as you know, there are quite some messaging around the tariffs.

[Lars Sandström, SVP & CFO at Ericsson]

So we will see. But based on what we know today, this is where we stand.

[Jakob Bluestone, Research Analyst at BNP Paribas]

Okay. Thank you.

[Daniel Morris, Head - IR at Ericsson]

Thanks, Jacob. Moving on to the next question, please. Next question today is going to come from Fredrik Lethal at Handelsbanken. Fredrik, your line is open.

[Fredrik Lithell, Global Equity Research - Small Cap at Handelsbanken]

Thank you very much. Thank you for taking my question as well. I was wondering if you could sort of describe a little bit more the trends in the North American market. We know since Q3 of twenty twenty four that you started to ramp up with one of your large clients there. And question is how this sort of project looks and how if it's going to sort of ramp down gradually or if it is so that the other big clients in North America are mitigating part of that or something like that.

[Fredrik Lithell, Global Equity Research - Small Cap at Handelsbanken]

Could you describe that a little bit would be interesting?

[Lars Sandström, SVP & CFO at Ericsson]

All right.

[Lars Sandström, SVP & CFO at Ericsson]

I got that one. As you might remember, we started seeing a ramp up during Q2 last year. And then coming into Q3, it was coming up on a very high speed, so to say, and high pace. And now coming this year, we are more on a stabilized good level on sales. So the comps will be difficult more difficult coming in, of course, in the second half of the year.

[Lars Sandström, SVP & CFO at Ericsson]

But overall, it's quite good pace. And America North America is not only one customers. They are three customers at least. That is important, and they are all showing good investment levels here also going forward. That is what we see.

[Lars Sandström, SVP & CFO at Ericsson]

I don't know if you want to add more on

[Börje Ekholm, CEO, President & Board Member at Ericsson]

The U. Market as well.

[Fredrik Lithell, Global Equity Research - Small Cap at Handelsbanken]

Okay. Thank you.

[Daniel Morris, Head - IR at Ericsson]

Thanks, Frederic. Moving to the next question, please. Next question is going to come from the line of Andrew Gardner at Citi. Andrew, please go ahead.

[Andrew Gardiner, Head of European Technology, Equity Research at Citigroup]

Good morning. Thank you for taking the question. Another one on The Americas, if I could, just following up from that last answer, Lars. Can you give us a sense as to where you think the customers are and across all three main customers there in terms of the inventory replenishment? You clearly had a significant drawdown impact sort of late twenty twenty three through most through the first half of twenty twenty four before, as you pointed out, the demand came back in the third quarter.

[Andrew Gardiner, Head of European Technology, Equity Research at Citigroup]

Do you have a sense as to where their inventory levels are at the moment? Is there more to go? Or are we back at a more normal level? And also in terms of the mix within the market, there's been a debate over, I suppose, sort of deployment versus swaps. Are you seeing the beginning of swap activity?

[Andrew Gardiner, Head of European Technology, Equity Research at Citigroup]

Or is that something that we might start to see in future quarters? Just a bit of detail around that would help with the margin outlook.

[Lars Sandström, SVP & CFO at Ericsson]

All right. Yes. When it comes to inventory levels, I think they're among the different operators, are fairly balanced as it looks now. They work a little bit different depending on which one. But based on how they operate, they seem to be fairly balanced.

[Lars Sandström, SVP & CFO at Ericsson]

So that's good, you can say. And when it comes to the mix in the revenue base, we will see more of services coming into and rollout activities into the revenue base coming forward here. So that is a bit of a difference that we will see. But as I also have said previously is that we will have the there can be shifts in the margins between different quarters. But when we look at more the long term view here, we see rather stable, good development here for the looking into the full year.

[Andrew Gardiner, Head of European Technology, Equity Research at Citigroup]

Understood. I suppose, I mean, as you point out, the mix may be changing a bit, but your gross margin outlook is still steady. The sort of 3Q from 2Q?

[Lars Sandström, SVP & CFO at Ericsson]

Yes. Yes. That's what we see. Then, of course, there is we are an industry which is very project based, and the product mix has an impact. But given what we see now, this is the guidance we give. And I think that is what we expect.

[Andrew Gardiner, Head of European Technology, Equity Research at Citigroup]

You.

[Daniel Morris, Head - IR at Ericsson]

Thanks, Andrew. Moving on to the next question, please. Next question today is going to come from the line of Andreas Joulson at DNB Carneade. Please go ahead, Andreas.

[Andreas Joelsson, Senior Equity Research Analyst at Carnegie Investment Bank]

Thank you and good morning. A little bit more perhaps future looking question and the comments that you made on five gs standalone and the investments you do in AI. Just curious how you see that perhaps impacting your business in terms of product mix. And also given that you have now, as you said, never been in a better position when it comes to gross margin, how do you see this operational leverage going forward if we should see more stand alone business or more AI related orders from your customers? Thank you.

[Börje Ekholm, CEO, President & Board Member at Ericsson]

Yes. If we start on the five gs SA, I think this is an important question, Andreas, and it's actually one of the key promises of five gs. We've been talking about the low latency, the high speed, the higher uplink, etcetera. All of that is, in reality, related to five gs SA. And five gs SA have so far had only limited deployments.

[Börje Ekholm, CEO, President & Board Member at Ericsson]

It's about onefour of the operators with any type of five gs SA network. And if you start to look at broad based rollout, it's really one in The U. S, one in India, Of course, the Chinese, you have a couple other countries with bigger, but it's in reality very limited rollout. It's two things that need to happen in the network. One is mid band coverage, so prepare the radio network with mid band.

[Börje Ekholm, CEO, President & Board Member at Ericsson]

As you know, that's still a very low build out coverage in, for example, Europe. It's probably less than half of coverage, 90%, 95% in The U. S, China, India. So Europe is clearly behind on that. The second part is you need to upgrade the core.

[Börje Ekholm, CEO, President & Board Member at Ericsson]

So that's another opportunity. And those two things will have to happen to take full advantage of the capabilities of the network. So what we're starting to see, and this is it's still, of course, early, but we're starting to see new type of devices coming. Think about the AI glasses. If you're going to have that, you need ultra low latency.

[Börje Ekholm, CEO, President & Board Member at Ericsson]

You need guaranteed low latency and you need a very high uplink performance. So this is starting to drive the interest. We're also seeing a lot of, I call them, network slicing opportunities. So for example, a police force wants to connect all their police officers and put body cams on all of them. They need actually a five gs slice on the network and that we see one of the customers delivering that.

[Börje Ekholm, CEO, President & Board Member at Ericsson]

We see, for example, for sporting events, selling network slides with guaranteed uplink. And if you go to a concert today, you want to stream the show, you're actually going to run into congestion problems. By buying a network slice, you can actually guarantee that you can upload your video while you're there, for example. Consumers are willing to pay for these things, and we start to see them happening. So I'm rather encouraged by the service innovation that's starting to happen on five gs SA.

[Börje Ekholm, CEO, President & Board Member at Ericsson]

Are we there to point to big revenues for us? No. But we're starting to see that interest, and that's going to drive need for more radio coverage, mid band and core. Then the AI side, I think this is such a fundamental technology. It attack or kind of we interact with the technology in many different ways.

[Börje Ekholm, CEO, President & Board Member at Ericsson]

So for example, if we start at basics, we use AI, of course, as coding bodies, but we're also using it in other parts of internal operations to drive efficiency. We're going to see that happening. It's going to happen increasingly so. We see some benefits now, but that's going to come more. Then it impacts also how the network is actually operated.

[Börje Ekholm, CEO, President & Board Member at Ericsson]

So think about fully autonomous intent based networks. They will require fundamental component. That's one of the reasons why we invested in the AI factory. So by having the compute capability, we can actually now start to develop those type of networks that the so five gs network and future networks will be so complex, and you will need to be able to create dynamic slices in there. That will require fully autonomous networks.

[Börje Ekholm, CEO, President & Board Member at Ericsson]

So we're convinced AI will be a fundamental part of that. And lastly, it will be a driver of traffic, because today, all focus is on the LLMs and the compute and the data centers. That's all critically important. But another part of the stack is actually that applications, we need to move to the edge. And when the applications move to the edge, they will need connectivity and they will need wireless connectivity.

[Börje Ekholm, CEO, President & Board Member at Ericsson]

And that's why we work with a number of the device vendors on how the demands on the network will look going forward. I want to link that also to Arduna and Vonage actually. That's going to be one of the critical applications for Aduna and Vonage, how you actually create that on demand, the network slice, basically an API based demand. You create a slice for your glasses with when you need alpha low latency, for example. So we see that quality of service also being interesting or increasingly important.

[Börje Ekholm, CEO, President & Board Member at Ericsson]

That's why we now see the number of operators being signed up in Eduna, and we cover a number of countries around the world, most recent Japan. So I think we're still very early in AI and how applications are going to start running. But I think that it's actually going to be a key driver of our business going forward, both on traffic, on the way we operate networks and the way we run Ericsson.

[Andreas Joelsson, Senior Equity Research Analyst at Carnegie Investment Bank]

Very good. Thanks a lot. A lot to digest.

[Börje Ekholm, CEO, President & Board Member at Ericsson]

Yes, I'm sorry about that. But it's a very exciting time we're in, I think.

[Daniel Morris, Head - IR at Ericsson]

Thanks, Andreas. Moving to the next question, please. The next question today is going to come from Simon Grenaf at ABG. Your line is open, Simon.

[Simon Granath, Partner & Equity Research Analyst at ABG Sundal Collier]

Thank you, Daniel, and good morning all. So now with The U. S. Market perhaps normalized and as you highlight in the report, the lower estimates suggest overall stable market. I had a question on what other areas you may boost your efforts in order to improve sales.

[Simon Granath, Partner & Equity Research Analyst at ABG Sundal Collier]

And in particular, I am curious on what you're seeing in defense and five gs for such areas because you do highlight defense in your annual report, but has not really talked too much about it recently. So could this be a needle mover or what is needed for that to happen? And I think it also makes sense from a market share point of view that entities like NATO is unlikely to choose European operators with non trusted round suppliers, so that could perhaps also benefit you. What are you seeing?

[Börje Ekholm, CEO, President & Board Member at Ericsson]

Yes.

[Börje Ekholm, CEO, President & Board Member at Ericsson]

I'll comment on that. We're doing a couple of things. First of all, I think the potential is actually substantial. And the reason for that is, of course, also defense benefits from connecting everything. And five gs is the way to connect all your equipment as well as sensors, etcetera.

[Börje Ekholm, CEO, President & Board Member at Ericsson]

So I think there is a big opportunity here for five gs technology also in defense. We see that in discussions that we're having with in a couple of countries around the world. We launched last year, and I think that's what you referred to, EFTG, it's Ericsson Federal Technology Group in The U. S. That is a specific entity to work with the Department of Defense in The U.

[Börje Ekholm, CEO, President & Board Member at Ericsson]

S. Still, the I will say the revenues are small on those applications, but I actually think it's a good growth opportunity for us for the future. It's realistic to say that a large part of the increased defense spending in Europe most likely will be allocated to connectivity because that is a critical part of modern defense force. So I think this is a very good opportunity for Western vendors, like you noted, because I think that will be farfetched to think they will go with high risk vendors. That's one part of the defense, right?

[Börje Ekholm, CEO, President & Board Member at Ericsson]

That's the pure defense applications selling to Department of Defense. I think important part. But I would also highlight another area that I think has a major opportunity is mission critical. So far, many countries around the world have very old connectivity networks for police officers, first responders in general. We're seeing an increasing interest here in building out that coverage.

[Börje Ekholm, CEO, President & Board Member at Ericsson]

And we are in big in many discussions around the world with countries of building out those type of new mission critical applications. I think that's going to be a substantial portion. I will say sales cycle there, we may say it's long on the CSPs, but the reality is the mission critical is typically a longer sales cycle. So as we land contracts there, we will, of course, disclose and talk more about it. But I think this is a rather big opportunity.

[Börje Ekholm, CEO, President & Board Member at Ericsson]

And again, think about the real time applications, the safety you can provide for firefighters being connected all the time when they're in the building or police officers having real time connectivity with body cameras on. These are changing the way you operate first responders, and that's the interest we're seeing. So I'm actually I think this is a big growth opportunity that will be net additive to the market that we don't have today.

[Simon Granath, Partner & Equity Research Analyst at ABG Sundal Collier]

Thank you so much. Appreciate it.

[Daniel Morris, Head - IR at Ericsson]

Thanks, Simon. Moving to the next question, please. Next question is coming from the line of Ulrik Raffa at Bernstein. Ulrik, please go ahead.

[Ulrich Rathe, Director at Bernstein]

Yes. Thanks very much, Simon.

[Ulrich Rathe, Director at Bernstein]

Just come back to Jacob's question on tariffs. I'm interested in learning more about what concrete measures you are doing at the moment in terms of mitigation. Is this essentially sort of low hanging fruit at this point because the uncertainty is so high and you're not quite sure whether you want to realign your supply chains given the tariff situation hasn't settled yet and you're more or less waiting before you take far reaching decisions? Or are you already on the drawing board to really realign your supply chain for the kind of tariff changes that we don't know exactly, but we know the directionally. So I'd just like to know where your state of thinking is, what actions you have already taken or what actions you will soon take?

[Lars Sandström, SVP & CFO at Ericsson]

Well,

[Lars Sandström, SVP & CFO at Ericsson]

I think when it comes to that, as you say, it is very much around the supply chain and the sourcing. And what we have not made any firm decisions given the uncertainty in what's actually going to happen. So but we are preparing to see how can we move. And that work started already during last year at the end, looking at what opportunities do we have and how can we ramp up and ramp down in different parts of the world where we have production. So that is prepared.

[Lars Sandström, SVP & CFO at Ericsson]

And then but going into implementation, smaller changes we can do in the current structure. And then if there are investment decisions needed, that we will see depending on what kind of decisions are coming out finally at the end here. So I think that is the balance act that we're working on. So yes, preparing, but not any big investment decisions taken.

[Börje Ekholm, CEO, President & Board Member at Ericsson]

And I would only add, as you know, we already built a factory in The U. S, came online about 2020. So it's in the making.

[Börje Ekholm, CEO, President & Board Member at Ericsson]

We kind of saw this coming in the during the first Trump administration. So we built that factory, and that's fully operational. Now it gives us much more flexibility. So we are, in that sense, I think, trying to manage the impact with the manufacturing footprint we have. Anything more, we need to look at how the tariffs eventually will shape up.

[Ulrich Rathe, Director at Bernstein]

Thank you very much.

[Daniel Morris, Head - IR at Ericsson]

Thanks, Ulrik. Moving to the next question, please. The next question today is going to come from Felix Hendriksen at Nordea. Please go ahead,

[Felix Henriksson, Associate Director - Equity Research at Nordea Markets]

I have a question on your confidence in your ability to gain market share because if we reel a few years back into your latest Capital Markets Day, I think you stated that in networks, are targeting to gain one percentage point per year of additional market chain and now you will stay with the AT and T deal taking considerable steps forward in that acquisition within the North American market range. But looking ahead, what is the region where you have the highest conviction on that Ericsson can gain further market share in the REN market going forward?

[Börje Ekholm, CEO, President & Board Member at Ericsson]

Yes.

[Börje Ekholm, CEO, President & Board Member at Ericsson]

A few years back, we were all talking about high risk vendors in Europe, right? I think that as it looks right now, that's not an opportunity. I think we need to be honest about that. And that's the way I look at it. So we look at the world in a way having a few big home markets, whatever you want to call it, but kind of markets where we really need to be strong.

[Börje Ekholm, CEO, President & Board Member at Ericsson]

Clearly, The U. S, clearly, India, clearly Japan, right? Then you can add some more like The UK, Australia, etcetera. But we are investing quite substantially to make sure that we are in a very strong position in those markets. And that's why you should see the investments in the R and D center in Japan, for example, as a way to create that local presence that allow us to have a stronger market position.

[Börje Ekholm, CEO, President & Board Member at Ericsson]

That's what we have done in The U. S. We built a manufacturing site there. We established R and D there. We have done in India, as you know, we have manufacturing there.

[Börje Ekholm, CEO, President & Board Member at Ericsson]

We have our big maybe not the it's the biggest country for us from an employment point of view. It's not the biggest on R and D, but we have a substantial R and D presence. Now we're doing the same thing in Japan. So I'm quite confident we can strengthen our position in those other two markets. We're already very strong in North America, but we can do more in India and Japan.

[Börje Ekholm, CEO, President & Board Member at Ericsson]

We see those as critically important for the long term success.

[Felix Henriksson, Associate Director - Equity Research at Nordea Markets]

Thank you. That's very helpful.

[Daniel Morris, Head - IR at Ericsson]

Thanks, Felix. Moving on to the next question, please. The next question comes from Sami Sarkimidis at Danske Bank. Please go ahead, Sami.

[Sami Sarkamies, Head of TMT & Equity Research at Danske Bank]

Hi, thanks. Can you elaborate on the strong results at Cloud Software and Services? You had almost 10% EBITA margin in the second quarter. What do say, a reasonable assumption on underlying level going forward? And then maybe also if you can update us on the IPR run rate following the Lenovo settlement.

[Lars Sandström, SVP & CFO at Ericsson]

If I start with the IPR run rate, coming out of the quarter here, we are at 13,000,000,000. So that is where we are on the run rate coming out of the quarter. And then when we come to Cloud Software and Services, as you highlighted there, it is a very strong margin coming out in the second quarter here, supported by IPR and a very good product mix with a high software share. But having said that, it's also the continuous improvement that we have seen for quite some quarters in cloud software and services. So that underlying trend that we have seen, if you go back a couple of quarters, that is what we expect going forward and aiming at the double digit EBITDA margin here in the midterm. That is still there for sure.

[Börje Ekholm, CEO, President & Board Member at Ericsson]

Would only add there saying when we put in place the turnaround plan for BCSS, it had a couple of components, right? One was increase the software share, commercial discipline and take costs out. And I would say it's the combination of those three that actually drive the result today. Of course, we got helped in Q2 by the IPR. But you should look at that underlying as kind of the trend is actually continuing.

[Börje Ekholm, CEO, President & Board Member at Ericsson]

Can I add one thing on the IPR? And we may not talk enough about it. Most of the settlement is kind of divided in two parts. One is settlement now and then a future arbitration. So the run rate will be more impacted by the arbitration than by the historic settlement.

[Börje Ekholm, CEO, President & Board Member at Ericsson]

But where that ends up, we'll have a view, but we'll see where it ends up.

[Sami Sarkamies, Head of TMT & Equity Research at Danske Bank]

Thank you.

[Daniel Morris, Head - IR at Ericsson]

Thanks, Abi. That concludes the Q and A session for today. So with that, thanks for joining us, everybody, and thanks for your time today. Thank you.

[Börje Ekholm, CEO, President & Board Member at Ericsson]

Thanks, everyone.

[Lars Sandström, SVP & CFO at Ericsson]

Thank you.

Participants

Executives

• Daniel Morris, Head - IR
• Börje Ekholm, CEO, President & Board Member
• Lars Sandström, SVP & CFO

Analysts

• Sandeep Deshpande, Analyst at JPMorgan Chase
• Sébastien Sztabowicz, Head of IT Hardware & Semis Sector Research at Kepler Cheuvreux
• Jakob Bluestone, Research Analyst at BNP Paribas
• Fredrik Lithell, Global Equity Research - Small Cap at Handelsbanken
• Andrew Gardiner, Head of European Technology, Equity Research at Citigroup
• Andreas Joelsson, Senior Equity Research Analyst at Carnegie Investment Bank
• Simon Granath, Partner & Equity Research Analyst at ABG Sundal Collier
• Ulrich Rathe, Director at Bernstein
• Felix Henriksson, Associate Director - Equity Research at Nordea Markets
• Sami Sarkamies, Head of TMT & Equity Research at Danske Bank